Let’s imagine you went to your bank and told them you needed a loan to buy a new business to merge with your current business. That decision on whether to give you the loan is based on more than just your credit score and the financial standing of the two companies. One of the key questions the loan manager should ask is, “What synergies or cost out will you create by owning this business?”
I’ve been asked a lot lately about the Albertsons/Kroger merger and what it means for our industry. Every time I think, “What is the deal thesis behind the merger? What can they do together they can’t already do separately?”
For example, would combining them save a bunch of costs? They won’t need two CFOs or two CMOs so there might be savings by consolidating upper management. Maybe over time they could take cost out by consolidating or centralizing some functions like merchandising, logistics, marketing.
But as anyone who’s ever been part of an acquisition knows, buying a company is a lot easier than integrating one. So then maybe the deal thesis is about leverage. Combined, they will have more clout over manufacturers and be able to negotiate lower costs and improved terms. Or maybe the deal thesis is about something else entirely. Maybe, combining the two retailers into one coordinated brand is about marketing leverage.
We’ve seen that play out before. Companies that consolidate brands get real efficiency when they market under a single label. Yet Albertsons and Kroger still operate multiple banners in multiple markets. If that were the core of the deal they could have done that long before they announced a potential merger.
Is this about retail media networks?
What if this is really about something entirely new? What if this is about retail media networks?
A retail media network is a product that big national retailers offer to advertisers. They create banner ads and media placement for brands to run advertising to their shoppers within their owned media platforms – think eCommerce sites, web pages, email programs, etc.
And the pitch is easy to understand: “Hey CPG brand, don’t advertise on Google or Yahoo! or some random website; instead give (NATIONAL RETAILER NAME) your advertising dollars and I will show your ads to actual grocery shoppers, giving you more than just views, clicks, and likes – I can also show you what actually sold, something Google can’t do.”
Pretty powerful, huh? No wonder retail media networks have been growing to become one of the hottest trends in the advertising world. It is predicted to generate $45 billion in U.S. advertising spend in 2023 and grow as much as $10 billion more in the next 1-2 years, according to an eMarketer report.
Think about that. The very brands that supply our stores are moving billions of dollars in advertising away from NBC, Google, Yahoo!, etc. and handing it to retailers to spend.
Independent retailers must ask, “How much is going to us?” For brands reading this article, I ask, “How much of your new spend is going to support independent and regional retailers?” At IGA we ask, “What do we need to do to qualify for investment, too?”
As the FTC and the press hash out the Albertsons/Kroger merger, they will agonize over deal mechanics like market share, cost out, marketing clout, etc. But I fear they will miss out on the real driver behind a deal like this: big retailers get a bigger chunk of the national ad buy. And that amounts to billions of dollars over time.
Are independents to blame?
Independent retailers make up over 30% of the industry, according to the National Grocers Association (NGA). But we aren’t getting anywhere near 30% of these new media investments and that is – mostly – our own fault.
A retailer media network needs to be national so brands can easily move budgets that used to go to national media platforms (TV, Google search, etc.). The platform must have common metrics so we can report on performance the same way national chains do. And we must have enough scale to matter.
This is where independents are at risk. The very thing that makes us competitive – our hyperlocal focus on our communities – makes us weak when it comes to national advertising buys. We are too customized, too complicated to work with. And when paths become convoluted, advertisers switch to easier routes.
At IGA we launched our own national advertising network four years ago. It has over 200 million impressions a year and continues to grow. And as big as we are, it needs to be bigger. If ever there was a time for independents to pool resources and come together as a channel it is now.
This isn’t a technology issue – we are doing it today across more than 1,700 stores. And it isn’t a budget issue, because retail media networks self-fund, usually in just a few months.
It is a leadership issue. We must think bigger and broader than our banners or ad groups. We must make it easy for brands to spend with us, or they simply won’t.
The good news is that brand dollars spent with independents generate huge results. Our media and sell-through results are much greater than the same investment with huge chain retailers. A tiny investment in a product like our national digital ad will have the highest ROI of anything a brand spends money on today.
So for retailers, I ask you to think about how we can come together as a channel. Reach out to me, or to media companies like Design House or Inmar or App Card and get them engaged in a conversation about scale. Talk to your wholesaler and ad group and make sure this topic is in your sights.
But please, please do it quickly. The money is moving now and if we don’t offer a competitive product we may find ourselves out in the retail media network cold.
A version of this column ran on April 24, 2023 in The Shelby Report. To view that piece, click here.