HOW ARE BRANDS MANAGING their retail media network spending?
Part one of this analysis addressed the conundrum CPG brands face in dealing with retail media networks. It summarized brand marketer spending trends documented by Cadent Consulting and described why brand teams are challenged when it comes to making sound empirical decisions about their retail media investments across their entire distribution networks.
Steps toward further clarity have been initiated by FMI – The Food Industry Association, which released new research, The Evolution of Retail Media: Decoding What Works — And What Doesn’t, in collaboration with NIQ and Think Blue on Jan. 31 at its FMI Midwinter Executive Conference.
The report forecasts CPG retail media network spending will reach $27 billion by 2026, with the grocery channel commanding $6.6 billion of that total.
Write the study authors, “As RMNs increasingly tap into brand media budgets, brands and retailers must adapt to this new paradigm. Aligning investment strategies, leveraging advanced data-driven personalization, and integrating RMNs into broader business planning will be vital to fully unlock the transformative potential of these networks.”
The report calls out several key challenges that trading partners face in this regard:
- Measurement gaps. Standard ROI metrics and consistent attribution models are largely absent.
- Talent and organizational readiness. Teams on both sides of the table lack sufficient bandwidth and experience to make highly-informed decisions.
- Transparency and trust. Opacity – around ad prices, inventory performance and data access – impedes collaboration and makes it harder to evaluate business outcomes.
When it comes to investing with retail partners in trade promotions – temporary discounts, display and other incentives – the established industry custom has always been to provide these incentives in proportion to the sales volume that the retailers can deliver.
Tradition of fairness, anchored in anti-trust law
There is a well-known legal basis for this custom in federal law – the 1936 Robinson-Patman Act (RPA) – which expressly prohibits special pricing incentives from manufacturers to large retailers, on the premise that this would make it impossible for smaller retailers to compete, ultimately harming consumer choice.
For many years, CPGs and retailers seem to have complied with at least the spirit of RPA when it came to trade and shopper marketing investments. The Federal Trade Commission had not pursued a Robinson-Patman case against a consumer product manufacturer in decades, until it brought a complaint against Southern Glazer’s Wine and Spirits in December, for what the agency alleged are unfair pricing practices. The company stated publicly that it “strongly disputes the FTC’s allegations.”
This was followed on Jan. 17 by a complaint versus PepsiCo alleging it provided “disproportionate promotional allowances” to Walmart. PepsiCo said in a statement it, “strongly disputes the FTC’s allegations,” asserting that the suit is “wrong on the facts and the law.”
However these particular matters are finally adjudicated, the present concentration of retail media investment among the largest few retailer networks calls for some fresh thinking about what “fair and proportional” truly means. Are less dominant, “power regional” retailers and small chains able to claim a fair share of retail media investment from brands?
“Pairing any conversation on customer investment with Robinson-Patman is a bit unnerving,” said one industry consultant on condition of anonymity.
Added a retail executive who is close to the issue: “Discrimination (unintentional or not) is happening in the retail world due to retail media. There is definitely not a fair and equitable investment across the board. Of course, the big retailers have more sophisticated tools and more reach.”
Another consultant confided that they were leaning hard into research on this issue on behalf of clients. “There is little definitive information about these practices,” they said. “Brands are overwhelmed managing just a few of the largest retail media networks.”
Audience providers versus data providers versus distribution partners
The idea that retail customers represent a valuable captive audience who arrive in a buying mindset is not new. Not only is this insight a foundation of trade marketing and later shopper marketing programs, but it was also the premise behind the earliest-known retail media channel launched in the early 1990s – Wal-Mart TV.
Then, and now, Walmart recognized that its shopper traffic represented a large and reliable audience that brands wished to reach and convert into buyers. It was not easy to measure shopper response alongside other in-store promotional activities, so impact was comparatively limited.
As digital shopping evolved, the ability to use programmatic techniques to deliver in-context messages to carefully-selected audiences emerged, beginning with Amazon circa 2011. Ad types like featured products and sponsored search worked beautifully with the visibility and measurability of the digital channel, delivering relevant messages adjacent to the selection and purchase process.
As other large retailers increased the power and sophistication of their own ecommerce offerings, it was a natural step to seek a share of this “alternative” revenue by putting up a retail media network. Walmart, Albertsons, and Kroger were early adopters. Their incentive was to attract incremental investment by tapping budgets that brands previously invested elsewhere – in national media or consumer promotion.
For brands, the incentive was the ability to tap retailer’s first-party shopper data to define highly relevant audience groups, then analyze their responses. The big retail media networks have each established self-serve portals or demand-side platforms, to enable brands to make these digital advertising buys.
According to NIQ’s The Executive’s Guide to Retail Media Mastery 2.0, “Retail Media is different from national media in that targeting is typically based on a single chain’s data, and the ads are then placed on the retailer’s owned media channels or within the retail media network’s partnership network. From a retailer perspective, the benefit of this is that there is more control over what ads are placed and where.
“However, the smaller the retailer, the more difficult it is to compete for advertiser dollars due to the audience scale that advertisers are often looking for.”
While smaller retailers still collectively represent a very important share of CPG’s product distribution, as individuals they may be disadvantaged when it comes to presenting their retail media offerings to brands.
Joint planning and new assumptions for retail media networks
As retail media networks began to appear about four years ago, it was natural to assume that retailers would never permit even one penny of the trade and shopper marketing funds they already collected from CPGs to be transferred instead into RMNs. Retail media were supposed to be entirely new, incremental, alternative revenue.
Industry sources now say the line has blurred, in the context of joint account planning. At a few retail accounts, some conversations may be addressing the total marketing investment from brands and how funds may be invested to deliver the best total outcomes for both parties.
What might motivate a retailer to consider a brand’s proposal to re-allocate some trade marketing funds into retail media? If the total investment by the manufacturer across all retailer programs including retail media amounts to a net increase, that might earn some cooperation, several sources agreed.
There might also be a “flywheel” effect that could benefit both parties: Say a retail media campaign succeeds at boosting sell-through for the advertised products. Since trade incentives are still doled out in proportion to sales volume, an increase in unit sales or conversions due to the ad campaign could result in a subsequent increase in overall trade allowances.
As retail media spending moves further into the mainstream, brand marketers face an imperative to master skill sets, technical standards and collaboration best practices that will enable their own successes alongside their distribution partners. Best practices are still being defined, as is the true meaning of “fair and proportional.”
This is the second part in a series. Republished here by permission from CPGmatters.