What Happens to Retail Trade Now?

First, the retail media leapfrog series is back by semi-popular demand, but this time it's in the form of a newsletter. It turns out I have a lot more to say that nobody else is talking about.

On Sunday mornings I'll be pouring my thoughts into helping new-and-emerging retailers leapfrog competitors in the retail media game by learning from the mistakes and thought processes we had at Walmart and other retailers over a 15+ year period (before it even had a name). There is so much noise about retail media today, but how do we focus on what is really important!

The target for this newsletter is NOT retail media people - although these will certainly be helpful in framing with your partners. Rather, this is for you merchants, retail marketers and operators - because you are the lifeblood of retail. Share with your friends.

If you've missed some of my self-proclaimed gems, check out:

• What is a realistic target for any retailer?

• Why to not build a media company in a retailer

• Retail Media 2.0 looks a lot like Trade Marketing 1.0

Today we're going to talk about retail trade spends, their apparent fungibility with other supplier spends, and the risks in that to retailers. I saw some real data on this topic and I think I may have at least part of this equation wrong.

If you haven't read it, I wrote about Trade vs. Shopper vs. Brand dollars against an underlying assumption that these dollars are all fungible and therefore retailers can dictate the terms. Specifically:

1. all three types of funding are incredibly important to the symbiotic relationship between the retailer and its suppliers (these dollars all ultimately jointly fund a retailer and its suppliers mutual growth)

2. you as a retailer are not entitled to all of that money unless you have the right mechanisms to support them, because today they are intentionally assigned to specific activations

In this, I suggest that if the dollars were all the same, then Facebook and Google should be able to capture 'trade dollars' which, according to the data below, might actually be possible now.

Dear merchant friends, you were right

This post is not about the distinction in budgets per se, but rather the fact that those budgets are actually shifting - at least according to a 2021 Kearny study on retail media by Katherine Black and Nora Kleinewillinghoefer.

I'm sure there is more updated data out there but this chart (reposted and summarized recently by Don Brett), most perfectly encapsulates the shift. I can only assume the shift has become greater as we scale out retail media.

Worth noting is that the total dollars remain flat, but how CPG brands are investing their dollars is changing at a macro-level.

After all of the years I spent yelling 'THEY ARE DIFFERENT BUDGETS' into a void, I think I may have been wrong - and I'm sorry merchant friends. At a CEO-level, it seems that CPG dollars are a bit fungible. Oopsies.

If it IS one big bucket of money, let's keep it in trade right?

As a merchant, this makes sense to me - if I can keep the dollars in trade, it goes into things that I control. It allows me to offer great prices to my customers, it supports the things that I want to be focused on to get my comps, it pads my P&L (of which I'm incentivized on), and the way I spend those monies have historically worked.

But from a brand perspective, I'm not so sure.

As a brand, can I truly get quantifiable value from my trade investments? Some retailers charge me slotting fees, some retailers charge for eCommerce fulfillment costs, some retailers charge for innovation or access to merchandising tools or flyer inclusion. I am often blind to the outcomes (i.e. not in control of those spends), and I sometimes see those dollars going to grow my competitor's brands.

What the above chart suggest is that, as a retailer, regardless of how we want the dollars to come in, the dollars ARE shifting to things that offer brands more control and visibility, and that has some massive implications for retailers, the role of a merchant, and our customers.

Is the trend of shifting dollars from 'Trade' to 'Retail Media' a good thing?

I was initially inclined to say 'yes', because it rebalances the equilibrium between retailer and brand and forces both to really focus on what is right for their connected but mutually distinct organizations.

But when you go back to the original purpose of 'trade', it was a 'tide raises all boats' type proposition and more importantly, it often served to reduce costs for the customer. In that, it's incredibly important that 'trade' maintains its dominance in the retailer and supplier relationship.

But as an extension of that point, it's worth highlighting one other slide in the Kearny report.

First, this slide clearly articulates the distinction in funds, suggesting that they are in fact different.

It also highlights the 'independence' or proximity certain promotional vehicles have to the physical shelf. I would argue that the distinction between a digital and physical shelf is unnecessary and so for certain buckets, like 'Sponsored Search (Ads)', we should have an L beside it (meaning that search ads are close to the 'shelf').

What this slide makes me realize is how much of the 'new' in retail media is beginning to move away from the shelf. CTV, offsite media, DooH, etc. Sure, it might be powered by shopper data, but it is distinctly separate from reaching a customer in a shopping mindset.

Back in 2009 when I first started at Walmart, I used to say, "brands spend all of this money promoting themselves on TV and radio and social and other, but when it comes to the shelf, they divorce themselves from the conversation". Said differently, you invest all of your marketing in non-shopping related vehicles, and when a shopper gets to the #FMOT, you're nowhere to be found (this was true in 2009).

If the true power of retail media is being able to communicate with the right customer in a guaranteed shopping mindset, then it stands to reason that as we push more and more outside of the core shopping experience, we start to lose some of that special sauce in retail media. Retail media becomes distinctly independent of the shelf.

And if the dollars are truly fungible as the above chart suggests, then we need to have a real conversation as retailers about where they are best served in a scaled retail media environment - in trade or via the retail media business - because at a certain scale, these dollars will absolutely start effecting cost of goods for our customers.

Before every person in retail media gets mad at me for that last sentence

We're not there yet - not even close.

In my [expert opinion], any given retailer's 'fair share' of retail media investments should sit in the realm of 1% of gross revenue. At this stage it is mostly a shift in 'shopper', not a true 'incremental' investment at that level (more on this another time). At that level, you should not see any movement in trade investments and if you do, you should push back.

Most retailers have not hit 0.25%.

Past 1% you have to get to a level of sophistication whereby you can to tap into truly 'incremental' budgets (the 'brand' budgets), and compete with the likes of Google (this is also for another day).

What's important in all of this is:

• Getting to 'fair share' is no longer achievable without some level of sophistication in retail media - you have to invest and work at it now because the competition is so great

• While the budgets seem fungible, the spends are still mostly allocated by bucket as highlighted above. If you don't have solutions to support those buckets, (i.e. you're not playing in retail media), you won't be able to capture monies from that bucket, and those monies will inevitably go to grow your competitors.

Most importantly though, much of the need for a shift from trade to retail media investments is coming from the massive amount of dollars flowing into Amazon ($45BN in their retail media business today). In this, it is entirely possible that if you are seeing a degradation in trade investments, it's because brands are spending so much in retail media on Amazon, that they're forced to limit their spending elsewhere to do so.

Closing Thoughts

It appears that there is in fact some fungibility between buckets of funding on the supplier side, but as a retailer, it is not enough to attempt to solely capture it in one bucket. In that, you need to be offering retail media and shopper marketing solutions if you want to capture funds in those buckets - and if you don't, those dollars will absolutely be going to fund your competitor's businesses.

And, more importantly, as we scale retail media we need to be very intentional and strategic about what advertising vehicles we play into against the lens of the broader retail business. This is to ensure that we're not ultimately impacting the cost of goods for our customers.

Share your thoughts. Share with your friends. I may not be right in this assessment and I'd love to hear from you!