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Retail Media Advertising Revenues Could Favor Big Stores and Big Brands
By Annie Sholar, Open Markets Agriculture Policy Intern
Last month, regional chains Giant Eagle [[link removed]] and Northeast Grocery [[link removed]] both joined the growing parade of grocery stores adding new advertising ventures to their businesses. Grocers all over the country are eying the nearly $45 billion dollars that brands will spend this year – and the $100 billion they’re expected to spend annually [[link removed]] by 2027 – on store-managed ad-placement services called retail media networks. Retail media networks turn grocery stores into advertising brokers, as brands pay stores to place advertisements on the store’s websites, apps, and physical property.
This new advertising trend is being driven by recent changes in privacy regulations that cut off the digital tracking tools [[link removed]] that advertisers used to follow and target customers across different websites. Brands now must look for new sources of consumer data; retailers like Amazon, Kroger, and Walmart, are an attractive substitute because they have decades’ worth of intel on individual consumers’ purchases made online and in-store with a customer loyalty card.
National and regional grocery stores alike are looking to cash in on their troves of shopper data by setting up retail media networks. Brands paying stores to advertise their products is nothing new, but the growing value of grocers’ shopper data is. This means that retail media is not just a new channel for data-driven targeted advertising; it’s also an emerging, lucrative revenue source for grocers. As such, retail media will systemically benefit larger grocery chains that have enough consumer data to entice more advertisers. The system will also primarily benefit larger manufacturers, like national processed food companies, that have the budget to afford advertisements at multiple retailers.
Grocery stores’ retail media networks offer brands access to online and in-store advertising spots that can be targeted to individuals or groups based on data the store has collected on its customers’ demographics and past purchases. The majority of ads sold through retail media networks [[link removed]] are sponsored online search placement results, which are auctioned off in real-time bidding wars between brands. Brands with larger budgets can place higher winning bids, sometimes paying as much as a couple of dollars for each [[link removed]] search page result, giving them an unearned sales advantage over unsponsored search results. Stores are also increasingly looking for ways to leverage shopper data to sell brand ad placements elsewhere on the internet, such as partnering with streaming TV services [[link removed]] to target TV watchers based on their grocery shopping history. There are more in-store ads to sell as well, thanks to new technology. For example, shoppers can sign into their store accounts on so-called “smart carts” while grocery shopping [[link removed]], whose screens display targeted ads based on what shoppers add to the cart, items they’ve bought in the past, or even where they’re standing in the store.
By selling access to both online and in-store ad placements, grocers can pad their revenue with higher-margin ad sales, supplementing traditionally low-margin food sales [[link removed]].
Retail media networks are just the newest (and data-heaviest) iteration of this type of revenue padding. Grocers have long sought extra cash payments from food manufacturers, such as shelf placement payments called “slotting fees.” Food manufacturers pay slotting fees when adding new items to a store’s inventory, with higher fees for better placement (like an eye-level shelf or close to the check-out). These types of revenue-boosting practices have been flagged as anti-competitive [[link removed]] because they create roadblocks for smaller brands who can’t afford the fees and artificially limit customers’ choices [[link removed]] in the grocery store. As a fee-based “alternative” revenue system, grocery stores’ new retail media networks will likely create similar anticompetitive concerns [[link removed]], consolidating brand sales and power in the hands of national food companies that have the budget and distribution to participate.
The rise of retail media networks will also give dominant retailers yet another leg up over smaller, regional stores. Not only do larger retailers have a broader customer base – meaning they have enough potential ad viewers to attract brands [[link removed]] – but they also have more resources to invest in building out the expensive data capture and analytics systems needed to run a retail media network. As Errol Schweizer, a grocery industry analyst and former Whole Foods executive explains, independent and natural grocers “are at a structural disadvantage in terms of access to capital, access to technology, [and] who they can partner with.” This means larger stores can build a more robust retail media revenue stream than smaller stores, further entrenching the market power disparities between large, national chains and independent grocers.
This large-store advantage that is reinforced by retail media networks has likely already contributed to consolidation in the grocery landscape. The massive consumer dataset and potential audience of a combined Kroger-Albertson retail media network is one major reason the stores are looking to merge [[link removed]] early next year. Kroger and Albertsons project [[link removed]] that such a network could bring in $1.5 billion in “annual alternative profits.” Schweizer believes that while retail media networks are not the sole driver of store mergers, the growing importance of retail advertising as compared to traditional channels [[link removed]] like print and TV will only make regional grocery mergers more attractive, as stores look to combine consumer data sets to leverage greater ad dollars. Without stronger antitrust enforcement, he adds, retail media is “just another brick in the wall” of grocery consolidation.
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What We're Reading
Last week the Federal Trade Commission and the Department of Justice released a draft of updated guidelines for regulating corporate mergers [[link removed]]. If adopted, the new guidelines could have wide-ranging implications for food system consolidation, given their renewed focus on harms beyond just higher consumer prices.
As part of the US Department of Agriculture’s recent work on competition in the seed and agriculture inputs industry [[link removed]], last week the agency formally announced a new USDA Farmer Seed Liaison initiative and website [[link removed]]. The website aims to help farmers, seed growers, and plant breeders “navigate a complex system” – namely, by providing easier access to information about the seed patenting process and other intellectual property policies.
Keurig-Dr. Pepper added La Colombe [[link removed]] to its already diverse coffee portfolio, acquiring a 33% stake in the specialty coffee brand for $300 million. Keurig-Dr. Pepper is itself majority-owned by the JAB holding company – which has been building a coffee empire over the last several years [[link removed]]. (Other coffee brands under JAB’s ownership: the bagged coffee business of breakfast chains like Panera Bread and McCafe; high-end roasters Intelligentsia and Stumptown; and grocery aisle staples Peet’s, Newman’s Own, and more).
About the Open Markets Institute
The Open Markets Institute promotes political, industrial, economic, and environmental resilience. We do so by documenting and clarifying the dangers of extreme consolidation, and by fostering discussions of ways to reestablish America’s political economy on a more stable and fair foundation.
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Written by Annie Sholar
Edited by Claire Kelloway, Phil Longman, and Anita Jain
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