Ready to understand what’s behind the rapidly growing Retail Media Networks (RMNs)? RMNs are transforming the local advertising landscape, and industry titans like Amazon and Walmart are leading the charge.
In this podcast, BIA’s Rick Ducey and Leyla Chatti analyze RMNs, dissecting its allure to retailers, consumers, the investment dynamics, and the key players shaping this landscape. Plus, they compare and contrast retail media networks against traditional paid media platforms. Listen now to hear how traditional paid media platforms like radio and TV can form symbiotic partnerships with retail media networks to boost their digital ad spending.
Download the report, Retail Media Networks (RMNs): A Local Perspective, here.
Hello and welcome to BIA's Leading Local Insights Podcast. Here we examine the trends, technologies, industry activities related to the local media revenue. We also assess the developments of platform lunches, data technology, nation-wide advertising all to examine opportunities and risks around local advertising. I'm Leyla Chatti, Senior Media Analyst at BIA, and I'm here with my colleague Rick Ducey, who's the Managing Director at BIA. Today, our topic is a new report that we're going to have just published, and it covers a timely topic, since holiday retail shopping is right around the corner and the retail media networks. Now retail media networks, which we call RMNs have been growing very quickly over the last several years, especially since COVID, and many of our clients have been asking about what it all means for the local advertising landscape. So we decided it was time to examine retail media networks from a local perspective, which is exactly what we've been doing for the last few months. In our report, we examine the rise of RMNs and functionality that makes them attractive to retailers. Then we look at the investment in this emerging media and identify which RMNs are on top right now and why. Plus, we align our RMNs findings with our own local ad forecasts for the retail vertical. Now this has all been incredibly interesting for us to research and so many times throughout our discovery period we found out that it's hard to keep up with everything that's going on in the industry. So there's a lot happening with RMNs, but we are ready to share what we've learned In this box test. We're going to synthesize our top findings about RMNs and then we'll tell everyone how to get a copy of the report, because we're offering this report for free to download in our website. Rick, you and I are going to tag team running through the top questions that we ask and answer in the report itself. Shall we get started?Rick Ducey:
Yes, we should. And, Leyla, it's always a great pleasure to be in these podcasts with you and to work with you on projects like this, so that's awesome and it's great to have a chance to share some of our data and some of the thinking to go along with the data for this fast emerging space, like you've been describing, with retail media networks. So, yeah, retail media networks RMNs have become very popular in conversation in the media business and I think the local angle is not something I've seen treated very much. It's just sort of overall spending, but how is this impacting the place that BIA lives, which is local media spending? So, first of all, one of the things I think we notice, Leyla, is even retail media networks, so what they exactly are isn't always consistently described, but can you tell us a little bit about what they are and how they've evolved over the past several years?Leyla Chatti:
Thank you, great, fair question, sure. So retail media networks are digital advertising platforms who are basically owned and operated by big retailers such as Amazon, Kroger, Walmart, Home Depot, etc. So these retail media networks are operated by e-commerce as well as brick-and-mortar retail platforms, and their main goal is to enable retailers to monetize, especially from their e-commerce websites and mobile apps, but also their physical location by offering advertising to brands and advertisers. Retail media networks have actually experienced a significant growth in transformation since its start in 2012, which was primarily driven by industry giants like Amazon and Walmart. Now our minds are generating massive site views on their pages, on their display and then store visits as well, and then the reach of largest retail media networks are in hundreds of millions of views. So they have a lot of people visit these sites, which they're basically trying to monetize from all the metrics they can. And advertising is a high-growth, high-margin incremental revenue source for retail media networks and basically they pull their budgets from trade marketing as well as from paid media brand budgets, and this eventually creates a new competition for local media. So, basically, coming back to you, Rick, now that I've laid the ground for RMNs, let's jump into some of the industry giants like Amazon and Walmart that I just mentioned. Obviously they make waves with whatever they do. Can you share how they have contributed to the growth and transformation of RMNs in general?Rick Ducey:
It's an interesting history. I think and I can't remember exactly how long ago I did this, it was at least 10 years ago I started thinking about retail and their digital presences have an online storefront so people can see where you are, and then they added inventory, then they added e-commerce capabilities and then they added search capabilities. I don't know exactly what I'm looking for, but I'm looking for a toaster that has these characteristics or show me your top rated toaster. There's a whole practice and a digital platform that's evolved around that. If you think about advertising, advertisers want to reach consumers at the right time at the right place in their purchase cycle with the right information. So I started thinking well, every company is actually a media company, as these companies stand up their own websites, and then they started creating their own mobile apps, like Home Depot has a mobile app. If you're searching for that perfect hammer, you can do the search on your phone. It'll tell you yes, it's in stock at the store near you, there's 12 left and it's in aisle 12, bin 37. It's like, wow, that's kind of cool. So that is a set of signals that's fantastic. Say, I'm looking at a Stanley hammer how valuable? Does that lead to DeWalt. Who would like me to buy a DeWalt hammer instead? So these companies started getting into their e-commerce platforms and their digital-owned and operated assets, like websites and mobile apps, to say I've got some of this going to come in here and buy a table saw or a hammer. Who would like to serve them an ad? It's like that is so valuable. So that was sort of the beginning days of what became more formalized, both technologically and in terms of content development and marketing and fulfillment for clients, for customers and brand clients, to bring this all together into a marketplace. So if you look at the brands, their way of thinking with the marketplace tends to be just divided into two budgets, sort of a trade budget or a marketing budget and then a media budget. And that's what's happened that we discovered lately going through this project is that's really accelerated. So this line between trade spending and media spending like maybe I have an end cap at Walmart to say, yes, buy my soft drink that would come out of a trade budget. Now that end cap is actually a digital asset that has a video screen and then maybe has some content and then you can run an ad in it. It can run in the mobile app, it can run on the website. So Walmart is in the media business, Home Depot is in the media business. Amazon of course has the deepest, broadest and highest scale level of all of this. But that's why it's kind of evolved from having some presence to serve some basic needs of customers what are your hours? Do you have that hammer in stock? How much is it? How well reviewed is it? To saying, well, let's open this up, we can run ads on our website, we can run ads in our mobile app. And as that started to come on the media side, we started to get more into programmatic trading platforms and real-time bidding and programmatic direct and programmatic guaranteed. So kind of on the other side, low and immediate side the technology and the business practices were rising up kind of at the same time and then all the crossover was data. So Walmart, Amazon, Kroger have a lot of first-party data. They know a lot about their customers. They can create some custom segmentation there. That's very interesting to brands and that is essentially how you buy media too. So a lot of the practices, business practices and technologies were very similar, with the rising silo, if you will, of retail media networks and the existing silo of paid media networks. So now we're at a point where there's some flungibility between those two kind of silos the retail media network and paid media network like TV radio and so on, and digital platform, research, mobile video, things like that. So that's kind of where we are now and it's a little bit frontier-ish, but settling down to some established business practices with significant spending going on in this market and that's part of research you're looking at. What kind of money are we talking about?Leyla Chatti:
So, as we mentioned earlier, the RMNs group and popularity and importance, and now we're estimating that the ad spend in these networks will be 45.2 billion dollars, according to eMarketer. Now, RMN ad revenue has been concentrated mainly in search ad formats and now it's growing into other digital ad formats, which includes, for example, video and social. Now, talking about platforms, search here we include organic and also paid search have long been the driver of eCommerce and have helped retailers to expand to other ad formats. This is due to the competition from agencies and retailers that are trying to move into a more unified approach and offer more formats, such as display ads and other formats. However, recently and in the recent years, search related ads gained a lot of traction in the early days, but search has been kind of slowing down a little bit to leave room for other types of ads such as video. Now video ads have been growing the fastest and have emerged as a stronger challenge as to traditional search and display ads. One of the reasons why is, for example, video drives a more immersive experience for consumers and they're basically leading more engagement and converging rates. Also, they've become really popular with retail media networks because that aligns also with their omnichannel experiences that they're trying to offer. Video ads are also great medium to implement a seamless experience across multiple touchpoints, from the retail sites to CTV, to social media outlets, as well as their brick and mortar stores.Rick Ducey:
Yes, we're talking about what's going on. The definition I kind of spend. I was talking a little bit about how these retail media networks grew up alongside what we might think of as paid media networks that bring editorial content. But the RMNs have grown. They've attracted a lot of spend, like you just went through. I spoke a little bit about this. Can you help us understand a bit more about what the value proposition is? What are the benefits that these RMNs offer, both the retailers that are carrying these brands and advertisers the brand advertisers that are trying to reach consumers through these marketing channels?Leyla Chatti:
Thanks for bringing that up. So retail media networks have multiple opportunities. So let's name a few of them. For example, the enhanced audience reach for paid media, especially traditional. So one of the big advantages of retail media networks are their vast and diverse customer base. They provide valuable access for traditional media platforms who are basically trying to improve their engagement levels, and also they hold the potential to help media publisher extend their audiences. Another factor would be that they provide sales attribution. Now, another notable aspect is their ability to measure and attribute actual sales across different platforms. Now, the resulting data is very important and key for media platforms who are aiming to optimize their marketing efforts, but also trying to increase their profits. And another third feature would be that they would bring innovative and interactive advertising products, like, for example, shoppable TV, which basically helps close the gap on purchasing. So retail media networks provide a lot of possibilities for paid media platforms, especially traditional, who want to expend offers to their advertisers, like with shopping video ads, which are basically customized and are there for the customer's needs, by simplifying the purchasing process but also enhancing the customer's journey. Now for retail media networks, the possibilities of linking features such as the shopper loyalty data, their sales data with the viewing is a powerful aspect for brands. Now, Rick, now that we've talked about a little bit about the retail on investment, I wanted to move a little bit towards the attribution part of things, where it's important for usage and firm growth. So here's a question for you how does the first party data of the retail media networks, combined with their sales outcome, basically benefit advertisers?Rick Ducey:
Well, because I mean, I think probably Amazon is the classic and probably the biggest example of this. Amazon, as a well-garden, if you will, knows a lot about its consumers. They know what they're searching for, they know what criteria they're using and that search with signals and they know us, the people on their Amazon platform. There are data privacy and data safeguard constraints that are operational, of course, but Amazon is a terrific closed-loop marketing platform from that perspective and that's very helpful for Amazon. They can do ratings and make recommendations to you for other things that you might be interested in, and if you say, gee, I put this in my shopping cart, they can pop up an ad that says, oh, here's another version of this that is higher rated. So there's a lot of different things you can do with that. And then what does that Amazon shop or do? Amazon knows it has 100% attribution at a granular level and again, they have to go through some data privacy safety filters. But basically they have that closed-loop marketing information, which is fantastic. So not only do they have the ability to create customer segments based on their search signals, they can look at performance of ads to see where that drives people and then ultimately, attribution at a very attractive KPI. Did they buy it and how much did they spend? And with Amazon, depending upon the audience signals that surface, you might even be presented different prices as a consumer on some of these platforms. And then, stepping back a bit more, that first-party data that these retail media networks, they knew a lot about the buying behavior, the search behavior, the buying behavior and can see some outcomes really valuable. But that's people who are on that retail media platform now. The brand may say that's great, but I want to get the bigger scale. I don't want to get just Kroger shoppers, I don't want to get just to Walmart shoppers, I don't want to get just to even Amazon shoppers. I want to reach more broadly from my top of the funnel strategy. How do I do that? The first-party data that you can aggregate and analyze from retail media networks. You can create segmentations, consumer segments, out of that and then build local-like segments so you can go to paid media, which are much better at getting to top of the funnel, reaching frequency goals maybe, than some of these retail media networks, and say, ok, here's 22 audience segments that we've learned are really valuable to us from our work with retail media networks. How many of these 22 audience segments, how closely can we activate them in your media? And that has improved all the KPIs and the marketing from the trade budget side, but also moving that into the media budget side. You're using first-party data from retail media networks to create smarter, more higher-performing segments that you activate on the media side. So it really helps brands on both ways in their trade budget as well as their media budget to get both reach extension through the paid media side and much more effective audience segmentation and targeting that pulls through to attribution.Leyla Chatti:
I think, Rick, that was very interesting. And then this brings us actually to the one of the main points, which is programmatic. I'm going to give you this question as well what is the significance of programmatic advertising and retail media networks, and which major players in the space offer their inventory through open ad tech platforms?Rick Ducey:
Yeah. So the last part about open ad tech platforms that's increasing the wall garden is where a lot of things start. So the Walmart, the Kroger, the Amazons, the Home Depot's obviously would like to keep you on their platform and as they have inventory that comes up, they're monetizing it at very attractive margins, like you were saying earlier, Leyla. So I mean that's fantastic. But at some point, oh, that is a nice revenue stream and we're doing it all on our own in our own closed garden, our own walled garden. But as you create more inventory, we're not getting the fill rates, we're not getting the take up, or we can actually be generating more CPMs by opening some higher CPM values, by opening up a bit. So some of their inventory they may open to the open programmatic marketplace. They can set floor prices and see how that fills. Again, they can offer very attractive audience segments that some brand or agency wants to activate. So some of it can be held within their walled garden and they can open up some portion of that inventory to the either open, open internet or doing some sort of relationship, partnership selling where it's a private marketplace, or programmatic direct or programmatic guaranteed. There's all different flavors of this now, but essentially, I think retail media networks are now starting to be run by media people. These retailers are hiring people from the media side of things no advertising, no media and it's starting to bring that expertise and the relationships over to the retail media network side. So the differentiators routine retail media network and paid media networks they're still there and I think the complimentary from a brand perspective and an agency perspective. They each have different value propositions but there's an opportunity to think for paid media businesses to play more in the retail media network side and vice versa, to the benefit of pretty much everybody in the ecosystem. It'll be competitive but there'll be more opportunities, I think, to have people go after and realize. So, leila, let's bring this back to the local side again. We at BIA focus on local media spending. That's kind of our specialty. I think our latest number is $176 billion or so will be spent to local in 2024, a lot of money. Not all of that retail media network spending goes to what we would call local with geo target designators. But what are you seeing about the local advertising marketplace, the retail segments like you were talking about earlier, and what we're seeing for local retail in terms of ad spending in local?Leyla Chatti:
Thanks for mentioning that question, Rick. That's something that we were interested in a lot the local part of it. So local advertisement in the US will be 161.6 billion in 2023, according to our BIA estimates. Now, local retail which does not include retail and retail networks, I just wanted to mention that contributes to the largest portion of the local ad spend, with 25 billion in 2023. And that's, I believe, 8.2% increase over here from last year. Their digital ad is about 39%, so about 9.6 billion of local retail this year will go to digital. Now, retail media networks they play in the local market, but at a national level. So retail media networks spending comes, as you explained, from the trade budgets, whereas the media budgets are more used to buy ads on Polish-owned and operated formats. Now, the spending between trade and media budgets is really hard to break down and have transparency on that, as more media spending is slowly shifting into retail media networks, especially at the lower funnel campaigns. Now, with the most of the retail media spending at the national level and mainly coming from trade budgets, as we explained, it is kind of difficult to determine how much of the local media budget is going to retail media networks, but this is one area that we will keep watching and analyze the more going into 2024. Now, Rick, let's conclude by discussing our final question. What do you think are the possible opportunities for paid media such as radio or TV? Who would like to partner with the retail media networks? What would be the strategies for the local sellers?Rick Ducey:
Yeah, so retail media networks as you defined it, they're digital platforms and if you look at traditional media like radio and TV groups, they still get a huge amount of local ad spending. But they're looking for growth on the digital side, which makes sense. That could be just digital or it could be cross-platform both the linear advertising opportunities as well as the digital advertising opportunities. These days buyers are looking at data-driven audience targeting and audience delivering across platforms, as the rise of retail media networks has become more interesting to brands and agencies, initially maybe at a national level, but now coming into local, it's becoming a thing and that spending can be competitive with local media in some cases, or it can be collaborative and maybe synergistic. So from a programmatic perspective, that's great. You can do a lot of things in automated trading marketplace, whether it's walled garden or you open up some of that inventory to the open marketplace. However, even though it's tech-driven, these ad tech platforms do best when there's actually a relationship element in the selling conversation. So the retail media networks are starting to get smarter about that relationship side because they're hiring some people out of the traditional media business to come over and help them understand how to work with advertising marketers and agencies, but on a local level they could use some scale and at the same time as these local media with local sales forces, feet on the street are out there trying to get more digital revenue opportunities. These retail media networks could probably get better fill rates, deeper into local audiences and even increase their operating margins more. By partnering with some of these paid media companies. They've got terrific first party audience data. The media companies have increasingly better first party audience data so you can have a couple of benefits. One is reach extension across the two networks what the paid media can deliver locally and then also reach into what the retail media networks can deliver locally. And then that segmentation and look at the move towards attribution. You can develop local segments based on the first party data for retail media networks and activate those in local media that the local media sellers could sell and drive higher overall KPIs on a brand level awareness, availability, intention to purchase, referrals, things like that. And then, if your KPIs drive people to mobile apps or websites or even floor traffic, all those attribution measures available from the data vendors. So the potential for partnerships and collaboration between local media and the retail media networks to drive higher fill rates, higher CPM higher engagement and reach a broader audience through different reach extension strategies. In theory some are really good and I think role interests is to see how much actually evolves. It will change the mindset and maybe the vision and strategy of what local media companies think of when they go to market. But it's an opportunity that seems like it has a lot of upside for both parties.Leyla Chatti:
Thank you so much, Rick. That was very interesting and thanks for letting our audience know a little bit more about the topic, which we have a lot more covered in the paper. This has been a great discussion on retail media networks and I know we could talk a lot longer, as I just mentioned, but for now we'll wrap it up here and encourage all our listeners to please go to www. bia. com. There, at the top of our homepage, you'll see information about retail media networks paper and you can follow the link to the download for the report. To our BIA Advantage subscribers. We've popped the report into the reports and webinars area where you can go directly there and get the report. If you have any questions about what we've shared today, we'll be happy to speak with you, and if you have more questions on retail media networks would like to answer, let us know. Email us at podcast@ bia. com. To everyone, thank you for listening and I'm looking forward to having you on our next podcast. Stay tuned, everyone, and have a nice day. Thank you.