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 may be savings by consolidating upper management. Maybe over time, they could take cost out by centralizing some functions, such as merchandising, logistics and marketing.
But as anyone who’s 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. Maybe, combining the two retailers into one coordinated brand is about marketing leverage.
We’ve seen that before. Companies that consolidate brands get real efficiency when they market under a single label. Yet Albertsons and Kroger still operate many 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 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 shoppers within their owned media platforms – think e-commerce 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) those advertising dollars and we will show ads to actual grocery shoppers – more than just views, clicks and likes. And we can also show what actually sold.”
Powerful, huh? No wonder retail media networks have become one of the hottest trends in the advertising world. They are predicted to generate $45 billion in U.S. advertising spend in 2023 and grow as much as $10 billion more in the next couple of years, according to an eMarketer report.
Think about that. The very brands that supply stores are moving billions of dollars in advertising away from traditional channels 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 that 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 such as market share, cost out and marketing clout. But I fear they will miss out on the real driver – 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 more than 30 percent of the industry, according to the National Grocers Association. But we aren’t getting anywhere near 30 percent of the 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. The platform must have common metrics so we can report on performance the same way as national chains. And we must have enough scale to matter.
This is where independents are at risk. The very thing that makes us competitive – hyperlocal focus on 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.
We at IGA launched our own national advertising network four years ago. It has more than 200 million impressions a year and continues to grow. But it needs to be bigger. Now is the time for independents to pool resources and come together as a channel.
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 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 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 such as our national digital ad will have the highest ROI of anything a brand spends money on.
So for retailers, think about how we can come together as a channel. Reach out to me, or to media companies such as Design House, Inmar or App Card and get them engaged in a conversation about scale. Talk to wholesalers and ad groups and make sure this topic is in their sights.
But please, please do it quickly. The money is moving. If we don’t offer a competitive product, we may find ourselves out in the retail media network cold.
For more news from John Ross, visit iga.com.
To read more news from our guest contributors at The Shelby Report, click here.
