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Retailer Media

Outlook 2022 emerging channel spotlight

Led by a combination of traditional retailers and Amazon, Retailers will build a $2bn segment in the coming 5 years. For the first time, this year we look into the drivers of growth in this burgeoning area which is creating new revenue for traditional and eCommerce retailers alike.


In early 2022, Amazon included its ads business in its annual revenue reporting for the first time, reporting US$9.7 billion in global revenue in the fourth quarter of 2021, a 32 percent year-on-year increase.7 At the same time, Walmart also reported revenues from its advertising business of over US$2 billion in 2021.8 This is part of a trend that, though not new, has come to stark prominence over the two years — the rise and rise of Retailer media.

PwC forecasts up to A$1.2 billion in “new” revenue will enter the Australian advertising market over the coming five years, taking a relatively nascent market from A$850 million to A$2.14 billion at a CAGR of 20.1 percent based on the mid-point forecast. Growth will be accelerated by eCommerce players led by Amazon, but will also be driven by Australian retailers further developing and growing their media offerings. This revenue will come from a variety of sources — taking from other forms of traditional supplier trade spend, by competing for the media budgets of non-FMCG advertisers and, with the potential for most disruption, taking from other media channels.

Indicative Retail Media Revenue Forecasts 2021 - 2026 (A$ millions

It should be noted from the outset that the forecasts delivered in this report are an estimate only, based on PwC research and assumptions rather than third party industry sources. The nature of this sector is such that all retailers treat their media businesses differently with no standardisation of which assets are considered “media” or otherwise. A breakdown of inclusions and exclusions would need to be agreed upon should this sector look to standardise as others have previously.

Overseas, large retailers have been building out their media businesses since the late 2010s, developing them around a centralised data capability, combined with broad store footprints and high traffic eCommerce platforms. Many have taken their data offering and made it available outside of their own network, being used for both audience targeting and measurement of purchase. Grocers including Walmart in the US — often seen as the leader given its size — Loblaw (US), Kroger (US), Tesco and Asda in the UK, and Carrefour (FR), have been at the forefront of retailer media development, and more recently other non-food retailers have also launched: CVS Media Exchange, Macy’s Media Network, Home Depot’s Retail Media+, and Instacart Ads.
 

Retailer Media > eCommerce

“Retailer media” is not a wholly new phenomenon, nor should it be seen as limited to online ads on eCommerce sites. Since the earliest days of product catalogues, in-store radio and point of sale displays, retailers have offered their suppliers access to advertising spots in their owned-media assets. What has changed in the last few years is a combination of focus on external commercialisation and technological development.

Retailer focus: Retailers have identified the high margins (up to 90 percent) that can be realised by media placements when traded as a standalone offering. This has led to a greater focus, and even an uncoupling of these assets from their traditionally merged sale within broader merchandising trade negotiations. Where these assets are coupled with a customer data offering or a means to link the delivery of ads to sales outcomes, the offering to media buyers has the potential to be all the more enticing. In Australia, this approach to fully commercialising media assets within a standalone unit was first visible with the launch of Woolworth’s Cartology business in 2019, and more recently Coles has stated its intent to grow its footprint with a Coles Media business unit. Similarly, others including Endeavour Group are also thought to be developing a media division, and Chemist Warehouse has traded media assets through its Stratosphere agency partnership.

With this growing focus, “traditional” Retailer media is expected to grow to A$1.48 billion by 2026, at a CAGR of 14.1 percent based on the midpoint forecast.

Technology driver: Previous to, but accelerated by the COVID-19 pandemic, Australia has seen rapid growth in eCommerce, and developments in online marketplaces. Comparative to Google’s offering of sponsored listings within its search engine results pages, eCommerce aggregators and marketplaces have created spaces to sell media spots. With more people choosing (or needing) to purchase online, advertisers demand for these placements has grown. As noted earlier, Amazon’s advertising business, which comprises on-site sponsored listings and other ad products, has seen rapid global growth and, as its Australian presence has grown, so too has its local media business.

The pure-play online growth has been coupled with the development of technology. Australian start-ups CitrusAds and Zitcha have offered greater access to Retailer media — be that online or increasingly offline for media buyers offline for media buyers.

Given technological advancement, and eCommerce’s rapid growth in Australia it is expected the pure-play eCommerce portion of Retailer media will outstrip traditional Retailer media over the forecast period, with a midpoint forecast CAGR of 50.8 percent to reach A$660 million by 2026.

2021 Retail vs. eCommerce Revenue Share

2026 Retail vs. eCommerce Revenue

Short term growth is expected to come from key established players 

Whilst PwC has forecast rapid growth, it should be noted that it is not expected this will be wholly “new” revenue into the Retail sector. The nature of this sub-sector and its connection to parent retailers means we are unlikely to have completely new entrants into the market over the forecast period. Rather, current players will develop their offerings further and compete more aggressively for both trade spend (not reported within the Media industry) and/or from other media channels.

With Australia already having two leading supermarkets developing their offerings and Amazon expanding theirs, it is expected much of the growth will come from these three players, however we anticipate others across retail categories will build upon their media assets. As has been the casein other developing segments, we may see the launch of some network businesses, connecting and creating scale for groups of retailers the launch of some network businesses, connecting and creating scale for groups of retailers. This may come from within an existing holding company such as Wesfarmers, or an external standalone business.

Retailers acting like media companies can create growth

Regardless of which individual business wins, we believe this sub-segment will develop via:

  • Sales sophistication: To compete with traditional media sales businesses, retails will scale or partner with ad sales teams, along with building governance and technology. This will not be a simple, inexpensive road, particularly as media sales is not a core, strategic capbability of most retailers, but may be built over time.
  • Data sophistication: We are at a point in Advertising’s evolution that plays into retailer’s hands, namely the disappearance of cookies as the online targeting currency. Retailers with large pools of real, identifiable customers stand to benefit from advertisers looking for options to fill the gap left by cookies.
  • Measurement through to purchase: Not only might centralised real-world data be utilised for audience targeting, it offers the promise of closed-loop reporting to understand whether consumers went on to purchase. Target cohorts from their datasets and measure sales, thus proving ROI, should win out.
  • Standardisation and reporting: Historically trade spend on media, co-branding and other collaborative marketing efforts was not tracked under industry reporting. The revenues were, and continue to be, attributed to trade spend budgets and not assessed against standard Media industry measures. Some standardisation would be needed as media agency buyers enter the market, and with standardisation comes lower friction for buyers.
  • Entry of non-trade buyers: At a time where many advertisers are reassessing their approaches for a cookie-less world, options which target real individuals and can be connected online and offline will be enticing for adjacent brands who are not necessarily stocked in store, but whose audience are captive there.
  • Price inflation: As more buyers enter online auction-based environments such as within Amazon listings, it is expected that prices per-placement will increase as competition hots up.
  • Further eCommerce growth: Though broader consumer economic concerns such as rising inflation remain faster mobile internet, entrenchment of online purchasing habits and development of approaches particularly for FMCGs in direct-to-consumer marketplaces, should drive further uptake of paid media listings.

Potential opportunities for all

Given these developments, what opportunity does Retailer media present?

For Retailers: Ultimately media assets can deliver high margins — PwC understands 50-90 percent margin depending on the asset and typically already come with a buyer base (suppliers) and audience (current customers). This presents the opportunities to grow revenue in four ways:

  • Extract more revenue from current (typically supplier) buyers via developed sales capability
  • Develop new assets and routes to market
  • Attract non-trade new ad buyers from relevant adjacent categories
  • Create efficiencies via technology and process.

Potential entrants should be aware that building a media company from scratch may be expensive and require integrated resources to deliver effectively. As such, it could be more efficient to explore how current resources can be repointed, how third party partnerships can be developed or if there are marketplaces to join. That said, given the size of the Australian market, there may be space for additional players outside of the nascent incumbents of Woolworths, Coles and Amazon, so long as there is a differentiated offering.

 


Retail media business operating models could take one of three forms

Media asset management teams embedded in exisiting Media Division and/or business units

Benefits:

  • Alignment between traditional retail and media service offering
  • Close proximity to customer and responsive to customer needs
  • Provides flexibility, allowing for tailored solutions

Challenges:

  • Heavy investment in resource and effort required in restructuring organisation and building capability
  • Duplication of capability minimises economies of scale
  • Media sale may not be core competency / higher risk
  • Requires discipline to manage performance

Separated business unit model with distinct brand and operations

Benefits:

  • Standalone brand name perceived as 'independent'
  • Ability to focus effort on driving media strategy
  • Optionality to expand offering beyond core assets
  • De-risk current operations

Challenges:

  • Investment in resources required to establish business
  • Separate management may introduce conflicts of interest
  • Unable to maximise synergies from existing business

Partnering with external media and advertising service provider to manage media assets

Benefits:

  • Leverage established market leader media and advertising expertise
  • Shorter time frame to scale
  • No investment required to build capability

Challenges:

  • Less direct control and influence over strategy
  • Higher fixed costs in the longer run
  • Lack of in-house media asset management capability

For Marketers: While still in the early stages of evolution, for non-supplied brands Retail media assets may provide new opportunities to reach target audiences at relevant times in their day. Given the rich real-world purchase and interaction data retailers hold, shifting from cookies to real people, this may be a powerful opportunity for both brand and even performance advertising.

For other Media companies: Given their offerings, it is likely many advertising businesses hold some trepidation at the rise of Retailers’ media businesses as they will likely compete for traditional ad dollars as they grow. There is, however, an opportunity to partner: to co-produce new media assets bringing together the media company’s audience and content production, with retailer audience, data, and transaction capabilities into a powerful multi-platform offering.

Contact us

Bhushan Sethi

Bhushan Sethi

Joint Global Leader, People & Organisation, Principal, PwC United States

Tel: +1 (917) 863 9369

Peter Brown

Peter Brown

Joint Global People & Organisation Leader, PwC United Kingdom

Tel: (+44) 7789 003712

Carol Stubbings

Carol Stubbings

Global Tax and Legal Services Leader, PwC United Kingdom

Chaitali Mukherjee

Chaitali Mukherjee

Partner, HR transformation, PwC India

Tel: +91 124 626 6620

Contact us

Laurence Dell

Partner, PwC Australia

Tel: +61 386 032 151

Dan Robins

Director, CMO Advisory, PwC Australia

Tel: +61 439 531 447

Samantha Johnson

Partner, PwC Australia

Tel: 61 2 8266 7458

Jeremy Thorpe

PwC Chief Economist, PwC Australia

Tel: +61 416 245 535

Contact us

Laurence Dell

Partner, PwC Australia

Tel: +61 386 032 151

Dan Robins

Director, CMO Advisory, PwC Australia

Tel: +61 439 531 447

Samantha Johnson

Partner, PwC Australia

Tel: 61 2 8266 7458

Jeremy Thorpe

PwC Chief Economist, PwC Australia

Tel: +61 416 245 535

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