The rise of retail media has potentially profound implications for the entire advertising and marketing ecosystem: not just for retailers and advertising agencies, but, importantly, for the big spenders of advertising. The promise of retail media is appealing. Better targeting and measurement mean less waste and better return on advertising spend (ROAS), which should in turn translate into better margin and/or better top line, depending on whether saved ad dollars are reinvested.
Either way, we think retail media can directionally only be a positive for the largest consumer companies. We believe relative positioning among the key players will chiefly depend on three factors.
Size: Retail media is a power-law-driven beast. The players with the highest market share are likely to benefit the most.
Data. How much data do they have? This is not just a function of market size but also their relative exposure to online sales vs. brick and mortar. Those companies that over-index in digital sales and that have access to a lot of readily available first-party data should benefit the most.
Timing. Early movers will likely have an advantage, having already gone through phases of trial-and-error and having worked on their data businesses.
Consumer Staples are among the biggest advertising spenders in the world. Having spoken to the companies, we discuss key implications for our covered names in European Consumer Staples and analyse their relative positioning. L’Oréal has highlighted that it believes the imminent decline of third- party cookies will fundamentally change the nature of digital advertising. Retail marketing is one potential digital advertising channel that should allow for data-rich targeting in this landscape.
For Beiersdorf, retail media spending for NIVEA and Labello has almost tripled in the last three years. After speaking to six of the largest US Consumer Staples, our key findings are the following:
1) Growth: The general expectation across the companies we spoke with was that retail media spend would grow going forward.
2) Incrementality: We found the conversation surrounding the degree to which spending was incremental versus a reallocation to be fairly split. For some, we heard that retail media spend was incremental to A&P. However, others noted retail media is just a reallocation of current A&P spend.
3) In-housing: Most companies we spoke with take a hybrid approach to retail media, using both in-house capabilities as well as third-party agencies for content, planning, and analysis.