The next big thing: Retailers morphing into media players

Chris Pash
By Chris Pash | 16 January 2024
Credit: Viki Mohamad via Unsplash.jpg

Ruslan Kogan, founder of the successful Australian online retail business, has started a journey to become a media magnate.

The returns have so far been tiny but the signs are encouraging for Kogan’s move into advertising, a retail media play. The first month, July 2023, brought in $2,800 a day and the last report had $15,000 each day landing for part of November. 

“We knew this project had the potential to become a huge success because our marketplace sellers were asking us for ways to help them grow,” Kogan told the company’s AGM.

“But, as anybody in business knows, you can only really test whether an idea will be successful once the rubber hits the road. While it has only been a few months since launch, the signs are now promising and the organic demand from sellers is starting to translate into revenue.”

While, with gross sales of $189.2 million in the latest September quarter, is a minnow compared to other retail media players, the move is on trend.

Retailers are increasingly becoming media platforms in their own right. Shoppers now gather at supermarket websites, looking for bargains and weekly groceries. 

This is the point where retailers become media.  They are selling space to brands to pitch their products to these audiences online and in-store. 

Retailers are also an important part of the advertising world, with the biggest chunk, around 30%, of ad spend in Australia. 

kogan advertising revenue 2023 from agm presentationAnd the big question is: Will the rise of retailers as media syphon off advertising revenue from traditional media?  

Retail media, one of the fastest growing ad channels and potentially one of the most valuable in years to come, has been hard for media buyers to ignore over the past few years.

The local market is estimated to be attracting more than $1 billion in ad dollars and perhaps growing at 20% a year.

“To stay relevant, media agencies need to evolve their offering to think omnichannel, like the brands and suppliers we service already do,” says Harrison Bland, eCommerce director at Zenith Media Australia.

“This means thinking about retail media as more than just a few ad formats on retail sites as well as fundamentally understanding our client’s business structures to effectively support both marketing and sales teams in this evolving environment. 

“Retail media activations don’t appear on every plan yet, but several categories are certainly leaning in. Most notably, Consumer Packaged Goods (CPG), given the advance of self-serve offerings from Amazon, Woolworths, and Coles in Australia. 

“As retail media networks launch in other verticals, we’ll see a similar drive for brands to leverage the data rich environment, providing a need for specialists both in agencies and within brands.”

Analysts Morgan Stanley, in a deep dive into retail media in Australia, say retailers have always spent some of their ad budgets on their own in-store advertising, such as point-of-sale displays/banners. 

“But our industry discussions and research show that the rate of change is now accelerating, as consumer spending becomes more mobile/online/digital ... so is the way retailers market to their customers,” the analyst write in a note to clients.

The analysts believe most of the current measures of ad spend in Australia do not include retail media estimates.  

Morgan Stanley estimates retail media spending in Australia on in-house/owned ad platforms will grow to $2.8 billion in 2027 from around $1 billion in 2022.

The market share for retail media is currently around 6% but this will change as the emerging sector outstrips the growth of the total ad market.

The main retail media players in Australia, Woolworths, Coles and Amazon (with 75% of the market), plus emerging players including Chemist Warehouse and Endeavour Drinks, know everything about their audiences. They collect data via rewards schemes and track activity across their platforms. 

This makes retail media very attractive because targeting can be finely sliced to find buyers who’ve previously purchased in a category. 

And at least part of the fast growth in retail media will be at the expense of traditional media advertising, say the analysts at Morgan Stanley.

“We believe that retail media is a strong and fast-growing category of advertising, with some of this growth being funded from brands and advertisers shifting some existing ad dollars from traditional media to retail media,” the analysts say.

“We think this leakage is likely to accelerate over the next five years.” 

Morgan Stanley estimates more than $550 million of traditional media ad spend will be diverted to retail media by 2025, increasing to $1.1 billion by 2027.

The greatest leakage will be from total TV (40%), radio (13%), outdoor (5%) and print (5%).

morgan stanley chart - retail media leakage dec 2203

For retailers, a media play represents a new revenue stream that can either contribute to driving top-line growth and/or help to offset the costs of running an e-commerce platform or physical store. 

The overall gross margins of retail media are high, in the range of 70% to 90%, which can help to fund investment in a retailer's platform, supply chain, and/or customer proposition. 

“As the segment grows, more retailers are attuned to its economic potential, increasing appetite to monetise their customer platform by building out their own retail media offering,” say the analysts.

“Retail Media is also a strategic way for retailers and brands to drive customer loyalty.

“Well-targeted and timely placed ads that are relevant to the customer's interests improve their shopping experience, increasing their engagement and ultimately loyalty. Retail media can also be used to feed back data to retailers that helps them improve their owncustomer loyalty programs, increasing the stickiness of their customer relationship.”

Retail media is an untapped moment, a mystery to a lot of brands, according to Sam Cousins, chief strategy officer, The Media Store.

“I don’t believe we have enough experience in it yet or have educated our clients enough, and this responsibility also lies with retail media operators,” she says.

“The specialist retail media startups and consultants have done a better job in education and innovation and in turn motivation. If I think about my own journeys to purchase, there are still plenty of spaces that no one has infiltrated yet.

“As consumer spend decreases in 2024, retail media should be one of the best placed channels to allow us to shift and flex through contextual relevance and insight to capitalise on those shrinking moments of value. 

“I think we will see more budgets shift here as retail media providers create better and more unique solutions. Measurement and proven effectiveness should form part of the story to grow spend especially to hesitant marketers.

“When some clients think of retail media most of them are just thinking of Coles and Woolies, but It doesn’t have to be through the supermarket giants. Unique retail moments exist in all areas of a customer journey and maybe they just need a little bit of bravery and creativity to create them or bring them to life.”

Stoja Trkulja, client solutions manager, Half Dome, says advertisers and agencies are increasingly considering retail media as a part of their holistic media mix, with more and more traditional media budgets shifting into the retail landscape.

"To what was previously a siloed stream in media planning, we are experiencing an increasing focus on this landscape as retailers continue to expand their offerings with new formats. Brands can not only reach customers at purchase point but also tap into consumer data to grow new and existing customer bases,” says Trkulja.

“It's no surprise that advertisers are shifting parts of their focus away from traditional media channels.

“For agencies in 2024, we will see this shift continue as the planning streams merge into one, and retail buying will become a critical component of the media strategy. 

“There is potential for traditional media dollars to be increasingly consumed by retail placements as the key retail players continue to amp up their offerings and build on strong relationships with retail brands.

Emilia Chambers, head of strategy at The Pistol, says retail media is growing in importance among the wider marketing mix and uptake from both retailers and brands is on the rise.

"For retailers it’s a big opportunity to create a new revenue stream, positively impacting on margins,” says Chambers.

“Many retailers are sitting on a wealth of consumer data and prime real-estate on their websites which can now create a new source of revenue that is less resource intensive than traditional revenue streams.  

“For brands, retail media can help address the ongoing challenge to drive increasing sales in low-growth and increasingly competitive markets. It also creates new opportunities to reach highly relevant consumers, which has increased in importance for this year now that the final demise of the cookie is underway, leaving some brands having to find alternative ways to reach consumers. 

“The opportunity for closed loop attribution also makes retail media an important channel in helping marketers show the value of their media and shifting the mindset from marketing being seen as a cost centre to a profit driver.

This year, significant growth in retail media is expected as the opportunities available increase, and the medium matures. 

“While it will still be heavily dominated by retail and CPG brands, I’m expecting a significant share of the forecast growth to come from non-endemic brands, especially in categories such as entertainment, travel and leisure,” says Chambers.

“The increase of non-endemic brands entering into the retail media space creates the perfect three-way benefit. These brands can access invaluable first party data and get in front of valuable consumers, the retailers will see increased revenue from greater demand and consumers will be able to more easily source relevant products and experiences.”

Insider Intelligence’s eMarketer says retail media is going to be the fastest growing ad channel across media through 2027, growing by more than 20% each year to $109.40 billion in the US.

By 2027, retail media will nearly tie with social media as the number two ad spend channel, second only to search.

Retail media will be bigger than connected TV, digital audio, traditional television advertising combined in 2027, according to the analysts.

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