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10 minutes of expert insights every weekday. Your morning ritual for staying ahead in retail media.
The Return To Onsite
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[00:00:00] Kiri Masters: Somewhere along the way, retail media stopped being about retail. With a mandate to grow ad revenue weighing on their shoulders, retail media network leaders have spent the last few years conjuring up [00:00:15] increasingly glittery ad slots, media partnerships, and targeting options, all in a bid to win dollars that would previously have gone to national media.
[00:00:28] Best Buy Ads [00:00:30] recently launched connected TV, a creator program, and a TikTok shop just last month at its upfront. Walgreens is putting screens into twelve hundred stores. Walmart Connect and Omnicom brought Meta into their partnership to [00:00:45] match Walmart purchase data with Instagram creators. We see these kinds of announcements every week.
[00:00:52] But new research from eMarketer and Bain & Company shows that senior retail media leaders [00:01:00] believe that their future actually lies closer to home in the ad format that got us started, the humble on-site product ad. This is the second year that Bain and [00:01:15] Emarketer have done this survey, and this year They were able to survey 61 US retail media network leaders and ask them, where do you see growth?
[00:01:25] Where do you see headwinds? One of the questions that they asked was, [00:01:30] "Which ad formats do you expect to drive the most revenue growth over the next year?" In last year's version of that question, the top three ad slots spanned on-site, in-store, and off-site, [00:01:45] and this year, all three were on-site: search and sponsored product ads, native AI ads, and display and banner ads.
[00:01:56] Retail media networks still have plenty of appetite for [00:02:00] growth. They expect about twenty-three percent revenue growth this year, though nearly a third of respondents expect to come in under their sales plan. The retreat is about where that growth will come from, and [00:02:15] there are good reasons for it.
[00:02:17] Today's episode is based on a piece that I published to my column at The Drum titled Should Retail Media Get Back to What It Does Best? In this edition, I actually am able to include a few [00:02:30] comments from the community after I posted it on LinkedIn. Let's jump in
[00:02:34]
[00:02:35] Kiri Masters: I spoke with one of the authors of this research, Sarah Marzano, who's the principal analyst and VP at eMarketer, primarily covering [00:02:45] commerce media, and she put herself in a retailer's shoes when describing the findings of this research to me On a retailer's own website and apps, they have the most control.
[00:02:58] They have the highest [00:03:00] margins versus other ad types. They have the fewest third parties to answer to. And the survey results show that same shift in terms of what kind of things networks have prioritized over the [00:03:15] past year. One of those initiatives is expanding and enhancing on-site ads, and that jumped four places in the ranking
[00:03:24] And the margin gap between different ad types is significant. In [00:03:30] January, I wrote in one of my columns that on-site advertising generates profit margins of around 70, 80, even 90% for US retailers, compared to only about 40% on [00:03:45] average for off-site. There's a lot of money shifting hands, a lot of partners required, and retailers just don't make that much compared to on-site media slots.
[00:03:57] Now, just to be super [00:04:00] clear, I know that there is a big range within each of those categories, depending on the technology, the resourcing, the partners, et cetera, et cetera But fundamentally, huge margin gap
[00:04:11] There's also the question of who is paying. [00:04:15] Off-site means going after the national brand budgets, and that has proven to be a harder internal and commercial sell than many networks expected
[00:04:26] Kathryn McKee, who is an e-commerce and omnichannel [00:04:30] consultant
[00:04:31] Explained why in one of the comments when I shared this post out on LinkedIn. She says, "At large brands, the RMN relationship usually sits with the e-commerce or sales team, and those teams don't buy TV ads, they don't buy brand [00:04:45] placements, they don't buy anything that isn't at least mid-funnel." She says, "Their budgets are very strongly tied to ROAS and won't be budging.
[00:04:53] The brand money that Offsite was built to win sits with a different team."
[00:04:58] And so this is one of the primary [00:05:00] conclusions here is that on-site ad inventory can be sold to the people that are already buying from you, already interacting with in JBPs versus off-site retail media
[00:05:12] Requires negotiation and selling into an entirely [00:05:15] different team
[00:05:15] eMarketer recently ran separate research, uh, on the topic of retail media and social media and what that overlap kind of looks like, and it puts numbers on how hard the sell into those [00:05:30] brand teams really is. Retail media spending on social will be about $1.3 billion in the US this year. That's under 2% of retail media spend.
[00:05:42] And so this is your offsite placements on [00:05:45] retail media that we're talking about
[00:05:47] And the report concludes that the basic infrastructure is largely in place, but advertiser demand is the missing piece.
[00:05:57] Advertisers told eMarketer that [00:06:00] buying social through a retailer costs more and adds complexity, and some had even tested it against buying direct and found the extra cost outweighed the benefit that they got through reporting [00:06:15] audiences closed loop, those kind of benefits that are often hailed with this type of media buy.
[00:06:22] And so Sarah told me that retail media networks are gonna have to do a lot more than simply build the connectivity between the two [00:06:30] platforms. They have to actually sell it. Now, in-store media has been another one of these avenues that has been hailed for years as the next big wave of media spending.
[00:06:43] But advertiser [00:06:45] demand is still muted from my perspective. I did a quick poll on LinkedIn a few weeks ago asking brands and agencies and media buyers, how hard is it to buy in-store retail media versus buying on-site and [00:07:00] off-site digital retail media? And most respondents said it's somewhat harder or much harder or not actually even buyable at our retailers.
[00:07:12] That was ninety percent of respondents. Only ten [00:07:15] percent of respondents said it's just as easy. Now that is-- I think the RMNs themselves have seemed to have reached a similar conclusion. These emerging off-site formats, the social integration, CTV, influencers, [00:07:30] those types of ad initiatives fell five places in the eMarketer survey in terms of growth ranking with only twenty percent of networks putting those kinds of initiatives in their top [00:07:45] three.
[00:07:45] This is harder than it looks. Networks are also changing who they sell to. Growing the long-tail advertiser base was the top focus over the past year, with forty-nine percent of respondents [00:08:00] saying that they were gonna focus on the long tail and driving self-serve adoption rose five places. Now those kinds of initiatives, going after the long tail, driving self-serve, that [00:08:15] points away from the national brand budgets that off-site was meant to unlock
[00:08:21] And confidence overall in the business case is slipping a little bit as well. Only 31% of retail media network leaders [00:08:30] agree strongly that their retail media revenue is incremental to their existing supplier spend. Now that Confidence is down 14 points on last year. And so what Sarah told me is [00:08:45] that there's a fair amount of RMPs who are figuring out this is going to be harder than they thought it would be.
[00:08:50] She pointed out a couple of challenges here, talent shortages in technology, talent shortages in measurement and sales, and [00:09:00] a self-fulfilling prophecy that networks without the expertise can't win the leadership buy-in internally to fund these new things, to fund technology, to fund talent. And that is [00:09:15] another way of saying, talking about this retail media doom loop that I have written about and talked about extensively.
[00:09:22] Recently, one retail media network leader told me their request to replace a old school ad [00:09:30] server that couldn't read retail traffic patterns was denied. Um, and so now they have to manually correct those forecasts every week or two to make sure that things don't go off the rails [00:09:45] Are manual processes slowing down your RMN momentum? With GrowthLoop's composable commerce media solution, retail media and ad teams [00:10:00] can build and launch precise audiences in minutes, activate across DSPs and ad platforms, and deliver transparent ROI reporting that drives advertiser [00:10:15] revenue.
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[00:10:39] Now, a few networks have the resourcing and executive backing for [00:10:45] making big bets for building legitimate networks. Best Buy is an example of one where, uh, the head of its ad network, Lisa Valentino, reports directly to the CEO. They [00:11:00] had their ads showcased last month, and as I wrote about, they barely mentioned the sponsored product ad unit at all.
[00:11:06] It was all about off-site, the store, big partnership integrations and renewals, things like that. [00:11:15] But for most networks, retail media is ultimately a side quest, and for those, the retreat to on-site looks like a fairly rational move. Now, the risk here is that [00:11:30] on-site is where retail media is most exposed.
[00:11:33] I've argued this extensively before, that when product discovery moves into AI assistants and agents, shoppers reach the retailer's website having already [00:11:45] decided, and the search results page, where a lot of these sponsored product ads live, the traffic there gets thinner We're seeing this whole rash of new AI agents like Muse and Instinct [00:12:00] and Dots all starting now to shop and check out for users.
[00:12:05] And that appears to be a real concern for RMN leaders from this survey, where forty-four percent of those respondents named AI platforms [00:12:15] bypassing retailer-owned purchase journeys as a top disruption. So this retreat back to on-site makes sense, but the format needs to change. It can't just be a sponsored listing on a search results page.
[00:12:29] Consumer [00:12:30] habits are changing, and traffic patterns are changing. And so this survey results hint at what RMN leaders know already that they need to innovate on the format, on the placement, [00:12:45] and how they think about on-site ads.
[00:12:47] Thirty-four percent of respondents say that they're building a shopping assistant with monetization in mind So what next? Most of the responses when I posted this on LinkedIn a week ago was agreement. People could see it. [00:13:00] Uh, Michael Crans, the head of Macy's Media Network, jumped in and said, "This is totally on point."
[00:13:06] The interesting pushback that I got was from John Graeka, who is a digital commerce and retail media consultant, formerly head of retail media [00:13:15] of the Belgium market at Carrefour, and he saw a different problem with the retreat.
[00:13:20] He argued that leaning on onsite where the money is easiest may be one reason why the easy double-digit growth is [00:13:30] ending. He said, "There's a difference between doing what works now versus going where growth is next." In his view, offsite is where retailers and brands can work towards shared goals, which is bringing new shoppers to the retailer [00:13:45] and growing a brand's share once they arrive using the retailer's closed loop sales data.
[00:13:50] I think that that is true. That is, like, the, the true shared interest where the interests really al-align and the, the retailer can grow just as [00:14:00] much as the brand. But either direction asks a lot of the media buyer. Doing onsite better means selling brands on new formats like native AI ads. John's version of offsite [00:14:15] needs brand money from outside of that ROAS-bound e-commerce budget.
[00:14:21] So this is hard. As Sarah said, "You have to really get advertisers to buy differently, and it turns [00:14:30] out that's hard." That's it for today. Thank you for listening, and I'll catch you tomorrow.
[00:14:36]