Outlook 2022 emerging channel spotlight
In early 2022, Amazon included its ads business in its annual revenue reporting for the first time, reporting US$9.7 billion in global revenue in the fourth quarter of 2021, a 32 percent year-on-year increase.7 At the same time, Walmart also reported revenues from its advertising business of over US$2 billion in 2021.8 This is part of a trend that, though not new, has come to stark prominence over the two years — the rise and rise of Retailer media.
PwC forecasts up to A$1.2 billion in “new” revenue will enter the Australian advertising market over the coming five years, taking a relatively nascent market from A$850 million to A$2.14 billion at a CAGR of 20.1 percent based on the mid-point forecast. Growth will be accelerated by eCommerce players led by Amazon, but will also be driven by Australian retailers further developing and growing their media offerings. This revenue will come from a variety of sources — taking from other forms of traditional supplier trade spend, by competing for the media budgets of non-FMCG advertisers and, with the potential for most disruption, taking from other media channels.
It should be noted from the outset that the forecasts delivered in this report are an estimate only, based on PwC research and assumptions rather than third party industry sources. The nature of this sector is such that all retailers treat their media businesses differently with no standardisation of which assets are considered “media” or otherwise. A breakdown of inclusions and exclusions would need to be agreed upon should this sector look to standardise as others have previously.
Overseas, large retailers have been building out their media businesses since the late 2010s, developing them around a centralised data capability, combined with broad store footprints and high traffic eCommerce platforms. Many have taken their data offering and made it available outside of their own network, being used for both audience targeting and measurement of purchase. Grocers including Walmart in the US — often seen as the leader given its size — Loblaw (US), Kroger (US), Tesco and Asda in the UK, and Carrefour (FR), have been at the forefront of retailer media development, and more recently other non-food retailers have also launched: CVS Media Exchange, Macy’s Media Network, Home Depot’s Retail Media+, and Instacart Ads.
Retailer Media > eCommerce
“Retailer media” is not a wholly new phenomenon, nor should it be seen as limited to online ads on eCommerce sites. Since the earliest days of product catalogues, in-store radio and point of sale displays, retailers have offered their suppliers access to advertising spots in their owned-media assets. What has changed in the last few years is a combination of focus on external commercialisation and technological development.
Retailer focus: Retailers have identified the high margins (up to 90 percent) that can be realised by media placements when traded as a standalone offering. This has led to a greater focus, and even an uncoupling of these assets from their traditionally merged sale within broader merchandising trade negotiations. Where these assets are coupled with a customer data offering or a means to link the delivery of ads to sales outcomes, the offering to media buyers has the potential to be all the more enticing. In Australia, this approach to fully commercialising media assets within a standalone unit was first visible with the launch of Woolworth’s Cartology business in 2019, and more recently Coles has stated its intent to grow its footprint with a Coles Media business unit. Similarly, others including Endeavour Group are also thought to be developing a media division, and Chemist Warehouse has traded media assets through its Stratosphere agency partnership.
With this growing focus, “traditional” Retailer media is expected to grow to A$1.48 billion by 2026, at a CAGR of 14.1 percent based on the midpoint forecast.
Technology driver: Previous to, but accelerated by the COVID-19 pandemic, Australia has seen rapid growth in eCommerce, and developments in online marketplaces. Comparative to Google’s offering of sponsored listings within its search engine results pages, eCommerce aggregators and marketplaces have created spaces to sell media spots. With more people choosing (or needing) to purchase online, advertisers demand for these placements has grown. As noted earlier, Amazon’s advertising business, which comprises on-site sponsored listings and other ad products, has seen rapid global growth and, as its Australian presence has grown, so too has its local media business.
The pure-play online growth has been coupled with the development of technology. Australian start-ups CitrusAds and Zitcha have offered greater access to Retailer media — be that online or increasingly offline for media buyers offline for media buyers.
Given technological advancement, and eCommerce’s rapid growth in Australia it is expected the pure-play eCommerce portion of Retailer media will outstrip traditional Retailer media over the forecast period, with a midpoint forecast CAGR of 50.8 percent to reach A$660 million by 2026.
Whilst PwC has forecast rapid growth, it should be noted that it is not expected this will be wholly “new” revenue into the Retail sector. The nature of this sub-sector and its connection to parent retailers means we are unlikely to have completely new entrants into the market over the forecast period. Rather, current players will develop their offerings further and compete more aggressively for both trade spend (not reported within the Media industry) and/or from other media channels.
With Australia already having two leading supermarkets developing their offerings and Amazon expanding theirs, it is expected much of the growth will come from these three players, however we anticipate others across retail categories will build upon their media assets. As has been the casein other developing segments, we may see the launch of some network businesses, connecting and creating scale for groups of retailers the launch of some network businesses, connecting and creating scale for groups of retailers. This may come from within an existing holding company such as Wesfarmers, or an external standalone business.
Regardless of which individual business wins, we believe this sub-segment will develop via:
Given these developments, what opportunity does Retailer media present?
For Retailers: Ultimately media assets can deliver high margins — PwC understands 50-90 percent margin depending on the asset and typically already come with a buyer base (suppliers) and audience (current customers). This presents the opportunities to grow revenue in four ways:
Potential entrants should be aware that building a media company from scratch may be expensive and require integrated resources to deliver effectively. As such, it could be more efficient to explore how current resources can be repointed, how third party partnerships can be developed or if there are marketplaces to join. That said, given the size of the Australian market, there may be space for additional players outside of the nascent incumbents of Woolworths, Coles and Amazon, so long as there is a differentiated offering.
For Marketers: While still in the early stages of evolution, for non-supplied brands Retail media assets may provide new opportunities to reach target audiences at relevant times in their day. Given the rich real-world purchase and interaction data retailers hold, shifting from cookies to real people, this may be a powerful opportunity for both brand and even performance advertising.
For other Media companies: Given their offerings, it is likely many advertising businesses hold some trepidation at the rise of Retailers’ media businesses as they will likely compete for traditional ad dollars as they grow. There is, however, an opportunity to partner: to co-produce new media assets bringing together the media company’s audience and content production, with retailer audience, data, and transaction capabilities into a powerful multi-platform offering.
Joint Global Leader, People & Organisation, Principal, PwC United States
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Joint Global People & Organisation Leader, PwC United Kingdom
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Partner, HR transformation, PwC India
Tel: +91 124 626 6620
Partner, PwC Australia
Tel: +61 386 032 151
Director, CMO Advisory, PwC Australia
Tel: +61 439 531 447
Partner, PwC Australia
Tel: 61 2 8266 7458
PwC Chief Economist, PwC Australia
Tel: +61 416 245 535