The business of retailers building their own platforms to sell ad space and run ads for marketers is booming. The phase-out of third-party cookies and the demand for alternatives to the old digital advertising landscape are jointly driving this boom. As giants like Walmart, Target, and Albertsons launch retail media networks, some products have matured, and consumer packaged goods (CPG) marketers are expected to shift more budget toward platforms that closely link ad messages to the point of sale and fully leverage first-party data.

Despite the bright prospects, retailers already face the risk of repeating the mistakes of digital media, especially regarding ad volume. Meanwhile, traditional brick-and-mortar retailers are forced to build complex technical infrastructure in a short time. The coming period will be full of experimentation and exploration, as retailers must avoid missing opportunities while coping with the extensive trial and error that accompanies a gold rush.

"If you visit e-commerce platforms now, you'll see a significant increase in the inventory of sponsorships, sales, and ads," said Emily Turner, Head of Customer Engagement and Media for the Americas at data science company Dunnhumby. "In my view, the customer experience has already been compromised."

In the short term, market enthusiasm makes any major shakeout unlikely. Consulting firm Winterberry Group estimates that U.S. retail media marketing spending has grown from $20 billion in 2020to $40 billion last year. With cookies expected to be phased outsometime in 2023, brands will seek other channels to reach consumers, and retail media is poised to benefit.

"In my view, the customer experience has already been compromised."

— Emily Turner, Senior Vice President of Customer Engagement and Media for the Americas at Dunnhumby

In response, a growing number of retailers are building ad networks that combine physical and e-commerce shopper data, including Walmart, Target, Kroger, CVS, Best Buy, Home Depot, Lowe's, Macy's, andDollar Tree. Amazon remains the model many companies emulate; according to Insider, Amazon isadjusting its ad priorities to attract larger brands. Related services are also evolving rapidly, incorporating cutting-edge features such as data clean rooms or cloud-based management.

"Within one to two years, this represents a huge opportunity. Right now they are in the investment phase," said Brian Gioia, Director of Product Strategy at e-commerce agency Scrum50. "They are not worried about profitability."

But the question remains: Can retailers use this windfall wisely? In the digital marketing space, even internet-native companies face challenges, let alone brick-and-mortar retailers with weak technical foundations who need to demonstrate omnichannel capabilities and so-called "closed-loop measurement." The pandemic forced retailers to shift to e-commerce, which hasfully exposed shortcomings in customer experience。

"They are experiencing growing pains in transitioning from traditional shopper marketing and trade marketing. What worked in the past no longer works," Turner said. "How do you evolve from a traditional trade and shopper marketing business into a media business? It requires learning a whole new set of skills that they often don't have."

Transition phase

As retailers struggle through the transition, solution providers see an opportunity. Dunnhumby justlaunched a solution called Dunnhumby Sphere, designed to simplify retail media functions such as audience targeting, media booking, forecasting, and measurement. The idea is that retail media is too fragmented, lacking connections between platforms and partners—a common issue in emerging areas of digital marketing.

For brands seeking the sophistication of established ad giants, deep integration with technology providers could become a trend.

"Things are moving so fast that retailers have little opportunity to build slowly," Turner said. "In the race to move quickly, they often need to partner."

"Right now they are in the investment phase. They are not worried about profitability."

— Brian Gioia, Director of Product Strategy at Scrum50

Walmart last yearpartnered with The Trade Desk, a leading independent ad tech company, to develop its own demand-side platform, drawing widespread attention. Walmart DSP was made available to select partners around the holiday season, providing access to The Trade Desk's inventory across display, streaming, mobile, audio, and connected TV, and leveraging shopper data from Walmart's website, mobile app, and 4,700 physical stores. This is a major test of whether retailers can scale their ad tech stack to compete with the trio of Amazon, Facebook, and Google, and could become a model for competitors to follow.

"The Trade Desk is building self-service tools for them, which is what many suppliers expect," said Ryan Gibson, Vice President of Strategy at performance marketing agency Adlucent. "When it comes to enhancing supplier customization, they want visibility, transparency, and control. That's what makes The Trade Desk partnership particularly attractive."

Another theme driving the category forward is the expansion of retail media networks beyond their own platforms. Kroger, the largest U.S. grocery chain, launched aprivate programmatic marketplacelast fall through its data and analytics arm, 84.51°. As coverage expands, retailers need to integrate ad formats that span more of the sales funnel. Richer media placements could help alleviate the ad fatigue that is beginning to harm user experience.

"You can look at how Amazon evolved its offerings," Gioia said. "Starting with highly conversion-focused sponsored product listings in search results, and after demonstrating success, gradually expanding into more brand building."

The pandemic has proven that many traditional tools are being revitalized in this space. From QR codes toprint catalogs, they have re-entered the retail media marketing mix and may have new utility in an era where persuading customers to share personal information is a top priority.

Although some traditional media are resurging, retailers overall still need help strengthening leadership focus on digital. Hiring may come from outside the industry, such as from tech companies, and marketing service providers may be invited to assist with integration. Similarly, CPG clients using retail media networks may need to develop new skills to run campaigns effectively.

"A lot of transformation work is needed," said Gioia, who previously worked in management consulting. "I can totally see companies like Accenture helping build these new organizations."

Consolidation of power

Marketers have long complained about the constraints of operating within the walled gardens of the big three, but the limited number of platforms did eliminate some of the paradox of choice. Conversely, advertising through Walmart Connect could be vastly different from doing so on Kroger or Instacart.

"The digital media world will be more diverse than it is today."

— Brian Gioia, Director of Product Strategy at Scrum50

Nevertheless, diverse options may be welcome, as different retailers cater to different audiences in terms of demographics or price points.

"The digital media world will be more diverse than it is today," Gioia said. "If you're a CPG company with different brands, some brands might perform well at Dollar Tree, while others do better at Target. Your media plan will reflect that."

CPG companieshave expressed concernsthat retailers may be building new walled gardens, despite claiming to oppose the old model. Despite increasing competition, retail media may ultimately be dominated by a few companies with physical footprints and digital capabilities that can meet the scale requirements of large marketers.

"Typically, in digital technology, whenever something new emerges, there's a flood of new companies. But that won't happen here because there are huge barriers to entry," Gioia said.

"Unless you spent the last 100 years building a lot of Lowe's stores, you can't have a Lowe's retail media network," he added. "What determines success isn't necessarily who has the best technology or media product, but who has the greatest scale."

Despite reservations, CPG companies can hardly ignore the appeal of retail media. Changes to cookies and other identifiers will more heavily impact performance and measurement, making it crucial to enhance these skills in the meantime. Retail media, built on quality data, ultimately promises something often hard to prove in the murky world of digital: there really is a person on the other end searching for something to buy.

"There isn't necessarily a lot of trust in digital marketing," Gioia said. "At least, I believe people are visiting Kroger's website, Amazon, and Walmart's website. I know real people will see my ads."