Retail Media's Transformation is Reshaping the Industry Landscape
The retail media network (RMN) industry is undergoing a remarkable transformation. Analysts estimate that global digital retail media ad spending is on the rise, set to soar from $98 billion in 2021 to a staggering $133 billion by 2024, reflecting a CAGR of ~10.7 percent.
The increased use of digital channels by consumers during the pandemic has made retail media more attractive to brands. By recognizing the broader impact and potential of retail media networks, retailers can unlock new revenue streams and enhance profitability. GroupM anticipates that advertising revenue from retail media will surpass television revenue by 2028. Ahold Delhaize aims to generate €1 billion in revenue by 2025, primarily through advertising on supermarket websites and leveraging consumer data. Sainsbury's Nectar360 platform expects to yield over £90 million in additional profit by 2026, and UK grocery sector retail media networks hold the potential to generate £1 billion in profit within two years, according to McKinsey. Amazon.com and Walmart lead the way, with Amazon disclosing $11.6 billion in ad revenue in Q4 2022, and Walmart Connect's sales growing by nearly 30 percent to $2.7 billion in 2022.
Retail media isn't just about advertising revenue; it's a game-changer for retailers' profits, too. Major players in the retail world are strategically reinvesting the profits they rake in from retail media advertising to fuel their expansion. For example, Walmart's significant growth in ad revenue holds great importance as it serves to offset the expenses associated with new fulfillment and distribution centers, as well as its expansion in the grocery category. RMN profits fuel investments in new online and offline capabilities that improve gross margins and customer experience, driving a virtuous cycle where the largest retail and retail media players will grow at the expense of smaller players' market share.
When it comes to RMN investment, in-store advertising remains a top choice for brands. As per Dunhumby’s CPGs and agencies survey, brands are prioritizing advertising through point of sale (59 percent) and smart digital in-store screens (57 percent) over other options like online coupons (51 percent), online search (51 percent), and online display (43 percent). Looking ahead, there's a continued focus on these priority channels, with POS and digital screens expected to maintain consistent investment in the near future.
The RMN sector is experiencing an increasing demand for measurement tools, especially from CPG companies. These tools are now placing a greater emphasis on concrete return on investment metrics. A 2022 study by Dunnhumby that surveyed CPGs and agencies underscored the primary key performance indicators utilized to evaluate the effectiveness of retail media campaigns. The results revealed a strong inclination towards sales-driven metrics, with attracting new buyers (58 percent), return on advertising spend (48 percent), and conversion rates registering (43 percent) as the central concerns.
The industry is undergoing a facelift through M&A. These strategic moves are bringing together expertise and resources, potentially reducing the number of independent players in the field. The advertising giant Publicis Groupe has invested in growing its data, analytics/artificial intelligence, and RMN capabilities through the acquisition of Profitero, Yieldify, and CitrusAd. Other notable examples include Criteo's acquisition of Brandcrush in 2023, to accelerate Criteo’s offline retail media solutions. Another significant merger was the Kroger-Albertsons merger in 2022, aiming to offer brands a more compelling advertising audience through its expansive network and a wider range of data that can enhance ad-targeting capabilities.
The RMN industry is rapidly evolving, with surging digital ad spending and online shopping habits at its core. Retailers are leveraging RMNs not just for advertising but also as a financial catalyst for expansion. With an emphasis on in-store advertising, there's a growing demand for precise measurement tools focused on tangible ROI. The landscape is further reshaped by strategic M&As, enhancing ad-targeting capabilities and consolidating industry expertise. In essence, retail media's impact extends well beyond mere advertising, marking a pivotal shift in the retail sector's future.
Aron Bohlig is managing partner at ComCap, a premier boutique investment bank focused on the intersection of commerce and capital.
Aron is the founder of ComCap LLC. Aron has worked in the fields of finance and technology for approximately twenty-three years. As an investment banker Aron has completed billions of dollars of financing and M&A transactions with sponsor-backed, private and public companies. Transactions have included IPOs, cross-border mergers, divestitures and acquisitions as well as a wide variety of public and private debt and equity financings. Aron has extensive international experience having completed transactions in Western Europe, Russia, Japan, China and the ASEAN region.
Previously, Aron worked at Credit Suisse, Savvian and Investec. As an operator he has served as President of a European division of a Texas Pacific Group portfolio company (Become.com) and has held director-level sales engineering, vertical sales and product management positions within the Clarify software division of Nortel Networks where his responsibilities included strategy, new product introduction and business development in the US, Europe and Asia. Aron is co-author of a book on selling business to business technology products. Aron is also a member of the oldest angel investing group, the Band of Angels. Aron holds an MBA from the Wharton School of the University of Pennsylvania and a BS in computer science from the University of Puget Sound.
