By Kimeko McCoy • September 11, 2024 •
Ivy Liu
In the retail media network arms race, agencies say their brand clients are feeling the squeeze, and are being pressured to spend big with retailers to secure and maintain premium in-store shelf space.
Retail media networks (RMNs) have seemingly become the industry’s latest shiny object, with retailers flocking the space en masse, determined to make everything a retail media network and hocking their first-party data to drum up another source of revenue. On average, retail media makes up about 20% of clients’ total ad spend, according to an agency executive who oversees digital commerce. (The exec shared these figures and spoke with Digiday on the condition of anonymity). That figure is up from an estimated 10% to 15% of total ad spend a few years ago, they added.
And that’s not all — retailers are increasingly including RMN media spend commitments as part of their partnership agreements, according to four agency execs Digiday spoke with on the matter.
“Retail media networks are asking brands to spend substantially more year over year,” said that same agency executive who spoke with Digiday on the condition of anonymity. “They’re using that implication, that perception without actually saying straight up tit for tat, ‘If you don’t spend, you’re going to suffer the consequences.’” For example, a retailer asking a brand to increase spending from $20 million one year to $30 million the next isn’t unheard of, per the exec (who did not provide exact figures.)
The execs Digiday spoke with for this story said that it’s all part of the partnership agreement negotiation process, where the recent RMN growth spurt has led to an emphasis on brands’ spend within the channel to secure premium shelf space, favorable distribution or other perks from retailers. Execs also said the lines of what was once a separation of church and state between retail media and merchant teams are also blurring in some cases in pursuit of growth and scale for the retailer’s ad business.
It’s estimated that there are more than 200 retail media networks at this point, according to Mimbi, a retail media intelligence platform. Digiday reached out to major players in the space for comment, including Target’s Roundel, Walmart, CVS Media Exchange, Kroger Precision Marketing (the grocer’s retail media arm) and Albertsons. Walmart said its ad business and Walmart merchants operate separate joint business plans for suppliers. CVS Media Exchange declined to comment. Roundel did not respond in time for publication. Meanwhile, Kroger and Albertsons both acknowledged the role of RMNs in partnership agreements, but said RMNs must prove themselves as a valuable media channel so as to not be seen as an additional tax in the negotiation process.
“For any retailer, there are core brands that merit a coordinated planning approach across both media and merchandising. Because, unlike traditional media publishers, retailers have a material interest in the success of those advertisers,” said Cara Pratt, svp of Kroger Precision Marketing at 84.51°. But, Pratt added, it needs to be a win-win. Meaning, RMNs need to prove their efficiency as a marketing channel if retailers are going to ask brands to spend with them.
In some cases, per the first exec, a retailer will approach a brand and say a certain amount of media spend needs to be invested in the retailer’s ad business to avoid penalties that can include something like deprioritizing the brand on in-store shelf displays. (The exec did not name exactly which retailers were making this kind of push.)
Big-name brands with big budgets — think CPG conglomerates — have the ability to pay to play. But such pressure could spell trouble for smaller consumer packaged good brands that already find themselves in a competitive space with limited marketing budgets, the agency execs said.
“It feels like double dipping,” said Boris Litvinov, president at ad agency Left Off Madison. “You’re getting a commission off the sale already and you’re forcing me to pay for your ad tech, your ad campaigns for me to run my business through.”
These negotiations, however, aren’t necessarily of a nefarious nature, agency execs added. They can, however, operate in a murky gray area, where “spend or else” messaging is implied. In Digiday’s latest piece from its Confessions series, an ad agency CEO likened such negotiations to quid pro quo-style relationships.
“It’s never written down, but there’s some retailers are doing a very good job of creating the perception or the interpretation that there are gonna be negative consequences there,” said the first exec.
Historically, negotiations between brands and retailers have included marketing commitments in some form or fashion, said a second anonymous agency exec. As RMNs have become more prominent (and lucrative — they’re expected to make up one-fifth of worldwide digital ad spend this year, according to eMarketer), spending commitments within the channel are becoming a bigger part of the conversation.
“Marketing commitments have always been a part of that value exchange,” the second anonymous exec said. “But with retail media networks being all the rage, more and more we’re seeing and hearing from sales folks on the brand side that the retailers are including retail media network commits as a part of those partnership agreements.”
Increasingly, retailers are aiming to be one-stop-shops for advertisers, positioning themselves as points of transactions as well as points of discovery for brands and products, both in stores and online. With that said, RMNs are pushing not just for a bigger piece of the media spend pie, but seemingly for the pie in its entirety. Retailers, like The Home Depot, are now asking for brand dollars, opening up media placements in brand marketing channels like streaming and inking partnerships to open up more off-site ad opportunities, like social media, for example.
The tea leaves, however, are still being read, and haven’t yet revealed if retail media is the silver bullet the industry seems to think it is. In other words, the onus is on retailers to prove their ad networks are worth the media spend commitments or they risk losing brands’ interest and ad dollars, regardless of the stakes of a negotiation.
“If they have a finite budget to invest in marketing for the year and that marketing budget needs to support sales activities, then brands need to think about what does the rest of that media mix look like,” the second anonymous agency exec said.
https://digiday.com/?p=554638
