Behind the Surge in Retail Media Advertising: Marketers' Frustrations and Concerns

Despite frequent recession warnings ahead of the holiday season and brands tightening budgets, retail media advertising has grown against the trend. It is estimated that retail media currently accounts for 11% of global total advertising spending, a category that was not widely recognized a few years ago, and is now rising at an astonishing pace while facing stricter scrutiny under the spotlight.

As the market matures and becomes saturated, cracks are beginning to show, and long-standing tensions in the brand-retailer ecosystem are resurfacing—with merchants often holding the leverage. Retail media's impressive upward trajectory in pure dollar terms masks marketers' growing frustration: they feel compelled to invest or risk missing out, even if the strategy may be unprofitable or more of a cost of doing business than a value-add.

Due to a lack of industry standardization, third-party solution providers also see opportunities to fill gaps that retailers are unwilling to address themselves. Meanwhile, the possibility of industry consolidation looms, which could lead to a few giants dominating the conversation. GroupM predicts that advertising revenue for retail companies will grow nearly 15% this year to $101 billion, reaching $160 billion by 2027.

"The relationship between brands and retailers has always been tense," said Nikhil Lai, a senior analyst at Forrester Research specializing in performance marketing. "Now, that relationship is being placed in the crucible of retail media and is changing in many ways."

Growing Pains

Given the scale of money flowing into retail media channels, almost every company with a physical store, e-commerce site, or app is racing to build an advertising network to capture a share. The topic is hot at industry events, with companies like Walmart, Target, Albertsons, and Kroger showcasing their latest technology and media innovations (the latter two are attempting a merger that, if successful, would create a stronger player in the grocery vertical).

"We're seeing significant growth in client investment in retail media networks," said Jeremy Woodlee, managing director at Accenture Song, during a panel at Advertising Week New York in October. "Almost every client we have, whether in retail or not, is looking at this space."

The appeal of retail media lies in merchants' ability to leverage their rich first-party shopper data to target and measure campaigns more precisely, while placing messages closer to the point of sale. As third-party cookies face deprecation and Apple's privacy policy changes have sharply reduced performance marketing effectiveness on social media platforms like Facebook and Instagram, the value of "closed-loop" measurement has grown.

Meanwhile, as the economy slows, marketers face pressure to prove their efforts deliver short-term results. Ad spending has continued to decline in recent months as brands seek to use budgets more wisely.

"Most growing pains stem from retail media still being in its infancy relative to traditional media formats."

—Rachel Tipograph, Founder and CEO of MikMak

Retail media also has other advantages that stand out in turbulent digital times. For example, pet food ads placed on e-commerce sites where people browse and buy similar products do not appear next to conspiracy theories or hate speech.

"Brands value retail media for its stronger attribution data (from media exposure to omnichannel sales) and because they perceive it as 'more brand-safe' compared to other traditional media formats," said Rachel Tipograph, founder and CEO of e-commerce service provider MikMak, in an email.

However, traditional retailers' mastery of digital technology has historically been uneven, to say the least. The rapid influx of brand dollars into retail media has prompted many retailers to rush to scale and partner with external vendors, but most networks remain fairly rudimentary. Tipograph noted that ad supply can be limited, driving up rates. Additionally, the real-time reporting and self-service features that marketers are accustomed to on digital-native platforms are often lacking.

"Most growing pains stem from retail media still being in its infancy relative to traditional media formats," Tipograph said.

Silos within retailers are also an issue. Retail media teams are relatively new and actively hiring talent, but many decisions are still driven by more conservative merchant departments. This can create complexity: retail media units work closely with certain brand partners looking to enhance their image, while other parts of the organization focus on conflicting areas.

"There is a disconnect between retail media units and merchant departments," said Michael Harrison, managing partner at management consulting firm Winterberry Group. "Ultimately, the organization's key performance indicators and goals must align. And that alignment is not yet happening."

Walled Gardens Redux

For years, endemic brands (consumer packaged goods companies that rely on physical stores and digital shelves to reach shoppers) have also warned that retail media networks risk repeating the mistakes of walled gardens like Facebook and Google. Retailers make enticing claims about driving incremental sales, but data is more guarded than ever. Experts say this leads to a lack of transparency.

"Kroger grades itself, Walmart grades itself, and everyone feels it's not really driving performance and doesn't trust the numbers," Harrison said.

Marketers have begun to evaluate retail media on their own, or with the help of external vendors and agencies to gain a clearer picture. Software companies and ad agencies with historical shopper expertise are leveraging this demand to help brands address the so-called 'signal loss' problem.

"Everyone feels it's not really driving performance and doesn't trust the numbers."

—Michael Harrison, Managing Partner at Winterberry Group

As more tools become available, brands are for the first time including retail media in media mix models (MMM), allowing comparison with historical performance of spending in other areas.

"It's about time, data volume, and also the natural human need for validation," said Lai of Forrester.

"This year is the first time marketers have enough data to include Amazon or Walmart in their MMM," he added. "They can compare the profitability of retail media as a channel against search, social, TV, or out-of-home advertising."

Fear of Retaliation

Talk that some retail media is unprofitable stems from the fact that endemic brand purchases rarely happen in isolation. Slotting fees, traditional shopper marketing agreements, and other retailer service costs stack up, entrenched through long-term relationships that predate the retail media boom. Winterberry Group's Harrison said some increasingly view the cumulative costs as a 'tax' rather than a benefit. This feeling is especially strong when buying media outside the retailer's own platform (i.e., 'off-site').

"All the markups turn it into a negative ROI," Harrison said. "Retail media networks are not getting inventory at lower cost; they're just adding fees on top, and performance doesn't justify the extra expense."

Brands have limited recourse because endemic brands are retailers' customers. They depend on retailers for prime shelf placement and favorable rankings on e-commerce platforms to drive sales. Experts say some brands are beginning to worry that if they invest less than their capacity in retail media, they might face some form of retaliation.

"The threat is imagined but credible," Lai added. "Brands need retailers far more than retailers need brands."

Meanwhile, proposed deals like the Kroger-Albertsons merger heighten anxiety: retail media power could become further concentrated in a few giants, tilting the scales long-term and leaving brands with fewer options.

"In reality, there could be three large walled garden entities competing with each other. I suspect other players will band together in some form of alliance, similar to early ad networks," Harrison said. "They have to, or no one will work with them."