Why 2022 Was A Year Of Reckoning For Retail Media - AdExchanger

Retail media had a breakout 2022.

In February, Walmart and Target disclosed advertising revenue for the first time, at $2 billion and $1 billion, respectively. A few weeks later, Instacart went full ad tech, and now sells inventory across a network of regional grocery sites and apps.

All of the largest department stores now have ad network businesses. It's a weird world in which the newest batch of programmatic competitors include Best Buy, Macy's, Michael's, Lowe's, Nordstrom and Walgreens.

But the ad network trend goes beyond retailers.

In 2022, retail media grew to include practically any business with a first-party identity graph, purchase data and a claim to ears or eyeballs. Marriott, Lyft, Uber and even a company like Volta, which manufactures electric car-charging stations, got in on the action.

Despite the buzz, however, retail media has a long way to go before the category is mature.

2022 growth spurt

For years, Amazon and the largest grocery chains (namely, Walmart, Target and Kroger) were the main retail media networks (RMNs).

But in 2022, a whole new crowd of first-party data owners came on the scene intent on monetizing their customers via marketing budgets, including "travel and mobility" brands.

Over the past year, Marriott, TripAdvisor, Lyft and Uber all launched new advertising units to capitalize on their ability to close the loop between online and real-world audiences using credit card or loyalty program data. That's the RMN special sauce.

And then there's T-Mobile, which rebranded and launched a new advertising unit in June. The move could be misconstrued as T-Mobile following in the footsteps of mobile carriers, including Verizon and AT&T, which attempted and then rejected ad tech businesses

But T-Mobile is following (and co-writing) the playbook for travel and mobility RMNs. With its acquisition of Octopus Interactive in early 2022, T-Mobile strengthened its position as a rideshare-based advertising service with a focus on digital out-of-home, which is becoming an RMN theme.

Marriott, Volta, Lyft and even TripAdvisor's early ad revenue ambitions focus on DOOH.

But retail media is also expanding into new business verticals and media channels, and the next couple years could bring a flood of local advertisers to retail media, Anne-Marie Schaffer, EVP and growth officer for Merkle's retail and CPG group, recently told AdExchanger.

For example, a retail chain like Party City could become a data-driven marketplace for local party planners, venues or experiential services, while a shoe store that sells soccer cleats could launch an ad business as an entrée for local leagues and sports businesses, Schaffer  said.

These are the same type of small-dollar advertisers that advertise by the millions on Google and Meta – and they could be the next push for RMNs.

RMN's awkward years

But growing pains accompany sudden growth, and for retail media, growing pains will come in the form of standardization.

The challenge is that a screen on an electric car-charging station is retail media. Kroger printout coupons and Roku CTV ads are retail media. So is the billboard atop a Lyft car, a product listing on Macy's.com and various mobile search ads.

If retail media means everything, it also means nothing.

RMN advertising standards are on the agenda for the Interactive Advertising Bureau, according to IAB VP of programmatic Jeffrey Bustos. But those first drafts aren't expected until 2024.

"There's such a unique footprint within each store – Walmart vs. Target vs. Amazon vs. Albertsons – so it would be great to have industry standardization of retail media networks, and maybe that will come," said Evan Hovorka, head of products and innovation at Albertsons, in an interview over the summer about the grocer's ads business.

His skepticism is telling, though. Each store does have a unique footprint, after all, and its own selling points. (Albertsons, for instance, is testing offers via smart carts and in-store kiosks that can dispense free samples or personalized deals).

Even if there is consensus behind standardization, coming up with industrywide standards won't be simple.

Big Retail is maturing

Meanwhile, most of the budgets coming into the RMN category are going to a handful of retailer giants and, in 2022, those companies made big programmatic leaps, even for giants.

Kroger's first steps into CTV advertising were with Roku as its strategic partner and sales leader, which involved Roku offering in-store sales lift attribution as a selling point to CPGs carried by Kroger. Kroger would license the data to Roku, but barely got its feet wet.

This September, however, Kroger dove into CTV with the addition of Xandr, PubMatic, OpenX and Magnite to its programmatic private marketplace offering, which launched last year. These pipes run through Kroger, not Roku.

"As streaming becomes the most common form of how people consume content, we knew we needed to create the capability to be there," Kroger SVP Cara Pratt, and longtime leader of the Kroger Precision Marketing (KPM) ad unit, told AdExchanger at the time.

A week after KPM's CTV announcement, Walmart's ad business, called Walmart Connect, launched an "Innovation Partners" category stocked with CTV and social video inventory – including TikTok, Snap, Roku, TalkShopLive and Firework – for the Walmart DSP. Walmart Connect also added 14 ad tech and analytics companies to its preexisting partner program, which in 2021 included only three vendors: Skai, Pacvue and Flywheel Digital.

Beneath the Walmart banner, Sam's Club is also considering expanding its nascent partner roster, said Lex Josephs, GM of the Sam's Club advertising business, which was rebranded this year to the Member Access Platform, or MAP. Right now, IRI is its only third-party conversion attribution vendor, LiveRamp is the clean room tech provider and The Trade Desk is Walmart's exclusive DSP.

For all the apparent tailwinds behind retail media, however – it's currently a $45 billion a year category – the vast majority ($40 billion) of that goes to Amazon.

Walmart, Target Roundel, Kroger and Instacart are big businesses, but they're eating scraps right now. Any retailer not named Amazon has a lot of heavy lifting in its future.

Programmatic miracle or mirage?

Still, retail media is a big opportunity for retailers themselves.

But in order to scale a high-margin ad business, it's critical for retailers like Walmart, Target and to make the sort of investments in tech, warehousing and fulfillment that have propelled Amazon's growth.

For example, the Macy's Media Network could quadruple the number of advertisers it works with (and its revenue) without necessarily hiring many more people, compared to the marketing and human costs tied to every bit of market share it gains through store sales.

What hasn't been proven, though, is whether retail media will be an important growth driver of programmatic, not just retail.

Criteo put a benchmark on retail media for the first time during its investor meeting in October, when CEO Megan Clarken said the company wants retail media to be a billion-dollar revenue contributor by 2025. That would mean quintupling Criteo's current retail media revenue in the next few years.

But how much does programmatic tech really share in the RMN opportunity?

Many regional grocery chains opt for Instacart, which is the ad tech behind Wegmans, Publix and Schnucks, to name a few well-known chains in the Northeast, Southeast and Midwest, respectively.

And while national retailers do fall back on exclusive or small strategic partners, such as Walmart with The Trade Desk or Target Roundel's SSP partners (Index Exchange and Criteo), there is a strong preference for in-housing.

And so, the saving grace for programmatic tech may be just that – the tech.

Even for Walmart, with its unmatchable resources, building an ad tech and engineering group could be a bridge too far, said Sherry Smith, Criteo's GM of global enterprise.

Walmart, Target and Kroger did expand their ad tech partner programs this year.

Smith said she has seen this play out before. She was the CEO of Triad, a shopper marketing agency that used to be the exclusive vendor for Walmart. Then Walmart in-housed its agency services, and now Triad no longer exists.

Still, agency account management isn't engineering, Smith told AdExchanger earlier this year. In other words, Walmart may get there, but most won't.

The fact is, Smith said, "very few retailers have the capability and the talent" to grow an ad tech business.