The In-Store Media Opportunity for CPGs

Retail media has recently become a hot topic in the CPG space. Essentially, retail media refers to advertising on retailer sites and apps, typically by brands that sell products directly through these retailers. The surge in interest is largely driven by Amazon's success. In 2023, Amazon reported $46.9 billion in advertising revenue globally, marking a 24% increase from the previous year. Estimates indicate that Amazon accounted for 10.2% of total digital ad spending worldwide in 2023, just behind Google and Meta (Statista).

Global spending on retail media is set to grow another 10% this year, after reaching $128.2 billion in 2023, according to WARC Media’s latest Global Ad Trends report. In the UK, retail media (excluding Amazon) was valued at ￡283 million in 2023, representing a 12% increase from the previous year, according to IAB UK/PwC. In Europe, the market reached €11 billion and is expected to grow by more than 25% year-on-year (McKinsey). Tesco recently informed suppliers that this remarkable growth will make retail media bigger than television by the end of 2025, trailing only paid search and social media.

So far, everyone is focused on the digital side of retail media. Digital platforms offer advanced targeting options, enabling advertisers to reach specific audiences based on demographics, interests, browsing behaviour, and purchase history. This precision allows for more personalised and relevant advertising, leading to higher engagement and conversion rates. Meanwhile, in-store digital advertising remains a much smaller market compared to online. This imbalance presents an opportunity: if in-store ads can be made as effective as online ones, a market worth tens of billions of dollars awaits.

In-store media represents the most compelling opportunity to drive sales for CPG players. Unlike most other media channels, in-store media can place advertising precisely where customers are making their final purchasing decisions. This is critical as a significant portion of grocery sales still happens in-store. According to a study by POPAI, 82% of shoppers make purchasing decisions in-store, indicating that effective engagement can significantly boost revenues.

Formats for in-store retail media include endcap screens, self-scan devices, ads at points of sale such as self-checkouts, screens on fridge/freezer doors, and mobile app engagement while customers are in-store. All of these formats come with in-store audience measurement to ‘close the loop’.

Retailers recognise the opportunity and are ramping up efforts and investments in the in-store media channel. Tesco is in the process of installing its 1,800th in-store screen across 420 stores. Sainsbury’s is also expanding its network of screens. Similarly, Walmart is increasing the number of ads on its approximately 170,000 digital screens in stores, including self-checkout stations and the screens of televisions for sale.

The intriguing aspect is that this channel benefits both retailers and CPG players. For retailers, the ability to sell digital advertising presents a lucrative opportunity to enhance profitability, as the gross margins from advertising are significantly higher compared to grocery sales. Additionally, the return on investment they can promise to CPG players is substantial. One retail media campaign for a global beer brand reviewed in a study showed a 12% sales uplift in Co-op stores, with an additional 3% uplift in non-Co-op halo stores (Grocery Gazette). Target is testing digital screens at the end of center aisles in its racetrack store layout to boost sales, with early results showing significant growth in item-level and total brand sales for advertised products. Furthermore, a food and beverage brand discovered that combining in-store events and sampling with digital displays yields better results than digital displays alone, indicating that a comprehensive in-store experience more effectively engages customers and drives sales.

If in-store media develops successfully, several opportunities will arise for CPG players.

1. Direct Influence at the Point of Sale: Consumers are more receptive to advertising messages when they are in shopping mode. According to Grocery TV surveys, 87% of consumers have a positive attitude towards in-store advertising, and nearly 50% of respondents said they are very likely or likely to pay attention to it.
2. Highlight Promotions and Offers: Digital signage and other formats effectively highlight competitive prices, special promotions, and limited-time offers, attracting more customers and increasing sales.
3. Encourage Impulse Buying: Strategically placed visual and tactile displays capture shoppers' attention and motivate additional purchases by promoting complementary products and exclusive deals.
4. Personalised Messages: Advertisers can send real-time messages or coupons to customers' mobile devices when they enter a specific store area, offering personalised promotions and content.
5. Strengthening Brand Presence: Consolidating their visual and promotional presence within the store allows brands to reinforce their image and positioning in consumers' minds. This improves brand perception and differentiates them from the competition, which is especially crucial against emerging brands.

However, CPG players are not yet fully focusing on in-store media, prioritising other media channels for their marketing spend. The main reason is that retailers have not yet developed strong in-store media networks. Setting up and maintaining these networks across various locations requires substantial capital and operating expenditure, presenting a significant hurdle. It also requires extensive training for in-store staff and merchandising teams to enhance the overall customer experience. Consequently, only the largest consolidated retailers have the financial and organisational capacity to drive in-store media. Indeed, Walmart and Tesco are leading the way, as they control 25% of the US and UK grocery markets, respectively (Euromonitor). In contrast, retailers in highly fragmented markets, such as Italy, will find it challenging to secure the financial and organisational resources needed to develop in-store media networks unless strategic partnerships are formed.

If in-store retail media takes hold, CPG companies must navigate many interesting developments carefully:

1. The traditional separation between sales, marketing, and e-commerce teams will become outdated. As in-store retail media grows, these teams will need to work together more closely. It will also require rethinking budget allocations to align with the new focus on retail media. When done right, this integrated approach can significantly benefit both branding and commercial efforts, enhancing the overall shopping experience for consumers.
2. The retailer-supplier relationship will be turned on its head. The seller will become the buyer and vice versa. For in-store execution to fully evolve into a retail media offering, retailers will need to break down the barriers between trade and marketing discussions with their suppliers. They will need to develop a joint, data-led customer engagement plan that creates value for all parties.
3. Retailers will have more power by knowing more about their consumers. Initially, retailers will need appealing content from major brands to gain traction for their media platforms. However, once a platform reaches scale, the bargaining power will shift in favor of the retailer, who will have more power by knowing more about the consumers. If retail media makes customers more loyal, retailers will no longer depend on brands to attract customers, increasing their purchasing power and potentially paving the way for more private label development.

The relevance of in-store retail media remains uncertain, but if it gains traction, it has the potential to dramatically impact CPG marketing and commercial strategies. Success in this channel could drive strong value and position the winner as a leader in the industry.