Retailers Ask the $100 Billion Question

Advertising spending in the digital age is moving closer and closer to the customer, and getting more and more enticing for retailers as a result.

The size of the prize in retail media is about $100 billion annually, according to a report earlier this year from the Boston Consulting Group. That comprises what industry sources describe as “high-octane,” high-margin dollars that can be invested back into their businesses in a kind of “flywheel” powering a new operating model for the industry.

Ad spending follows consumer patterns like retailers chase rooftops. Funds that at one time supported mass media like television and radio, over the last two decades migrated toward big online social platforms like Google and Facebook. Today, in what Boston Consulting Group described as a “once-in-a-generation sea change,” marketers are finding fertile opportunity in digital retail, where their messages can not only find consumers in the very act of purchasing, but can “close the loop” by identifying those who make a purchase after seeing an ad.

“Players like Amazon and Walmart are actually taking market share and taking budget from Google and Facebook, because there is already retail on the site, so they’re even closer to the transaction than Google is,” explains Sean Turner, chief technology officer and a co-founder of Swiftly, a digital platform for retailers. “And they’re able to deliver even better reporting or understanding of what that performance is.”

Amazon, estimated by Boston Consulting Group to be absorbing about a quarter of that $100 billion in retail ad spending, has long led race here, with emerging digital platforms like Instacart going hard after the opportunity.

But those players even in the best of times are getting only a fraction of consumer’s overall shopping trips and spending. This is where traditional retailers—with the right digital approach—can establish themselves as digital media platforms.

“What does this mean for the grocery industry going forward? We see this as a huge opportunity, especially because 80% of transactions today happen in a brick-and-mortar store, and for grocery, that number is actually 90%,” Turner says.

CPG Roots

Swiftly, a software enabling e-commerce and analytics company for food retailers like Save Mart, and retailers with eyes on developing an ad platform, like Dollar Tree, grew from the roots of another company, the commerce-as-a-service software Symphony Commerce Inc.

Symphony provided e-commerce infrastructure for brands. Including Pepsico, General Mills and Fiji water. When it was sold to a Texas-based investor in 2018, Symphony’s founder, Henry Kim, along with Turner, who was its head of product, turned their attention to retail and co-founded Swiftly.

“We had been getting a lot of calls from grocery executives saying, ‘Hey, help me to go online,’ Turner says. “I did the analysis and realized, gosh, there’s so much that's special about grocery. We can’t just take an existing e-commerce platform and automatically transition it online. It’s not even like adding a couple extra features, it’s a fundamental rewrite. And as we got into it, um, we kind of realized that that was a market that was too big to ignore.”

Kim, whose background was with Ron Burkle’s influential grocery holding company, Yucaipa Cos., called on contacts in the supermarket field to fill out Swifty’s team. Chief Strategy Officer Tom Dahlen had been associated with Yucaipa for years through its investments in Ralphs Grocery Co. (where he created its loyalty program), Pathmark Stores and Wild Oats Markets (he was CEO of both of those retailers). Thomas “Tad” Dickson, Harris Teeter’s former chairman, CEO and president, was named chairman. And an array of Amazon, Google and Microsoft vets got to work on the software.

“We spent almost three years in the kitchen building out our platform,” Turner says.

He describes a “Shopify-like” solution giving retailers “Amazon-like” personalization capabilities. Through deployments with six retailers, Swiftly serves about 8,000 stores, and has more than 16 million app users who’ve clipped more than 1 billion coupons.

Retail & Analytics

Key to Swiftly’s approach, Turner says, is a retail platform and a supporting analytics platform that together, enable stores to drive engagement with shoppers and deliver them deals whether they are in stores on shopping online. “Those are the two magic ingredients that you need to build a super-strong ad platform, because now I know what the shopper’s buying. I know what they’re interested in, and I can deliver the right message with the right offer for that shopper.”

The retail platform includes a digital loyalty program, list-making capabilities, digital circulars and coupons, mobile payment and checkout, and an omnichannel subscription capability.

These features are convenient for shoppers—and are deeply associated with savings opportunities for them, taking advantage of the frequency of the grocery trip and the high percentage of consumer’s overall spend on food, Turner explains. For example, the “SwiftLane” checkout—a shop-and-scan capability akin to Walmart’s Scan and Go—presents an opportunity for brands to get a message to shoppers. “This brings that Catalina coupon experience back to where the shopper is actually in the aisle, scanning the product, and that’s a much better time to message the shopper, if you want to sell them toothpaste to go along with the toothbrush in that aisle.

“The more personalized it is, the more deeply they engage, the more items that grocer gets on their list, the more they buy, the more often they come,” he continues. “And that’s how you capture greater share of wallet. We see that our average user on one of our apps we power putting over 30 coupons a month. That’s representative of how deep that engagement is.”

The subscription capability gives brands the opportunity to present savings opportunities over time, using the retailer’s app to enable a “drop ship” direct delivery. This builds brand equity without needing to first “buy the eyeballs” of shoppers.

“Each user’s app in the meantime reflects their shopping history, providing what Turner describes as an “Amazon-like” experience that calls attention to differentiated assortments in physical environments that more or less all look like the same.

In return, brands get analytics that can demonstrate to them how effective their campaigns are and compute a return on spend. In retail media, these are likely to be bigger numbers and better margins than they would be for ads placed in more traditional online platforms. One reason? “They don't have to pay to go and ship a Glade Plug-In to somebody’s home,” Turner says. “That’s tough on a $6 or $7 item, to go pay $4 in shipping costs.”

The retail media channel can also be a solution for other challenges arising in the space. For example, when supply chain gluts and consumer overstocking amid the COVID pandemic prevented Clorox from providing sufficient bleach cleaning items, the Swiftly app helped the company pivot consumer demand toward an item that it had in stock, the sleepy floor cleaner Pine Sol, which also happens to be a disinfectant.

“We did a campaign with them to let shoppers know that actually, Pine Sol kills COVID-19. This was super successful because this actually took demand from a product they had no inventory of and shifted it,” Turner explained. “When they did that, it was just about educating shoppers and getting that message out to them, and in the digital space, they could react faster than by changing the packaging to put a sticker on it that says it kills COVID-19.”

Turner says Swiftly is ideally geared toward retailers that do a minimum of $1 billion in sales, and says there is plenty of opportunity to add such customers through new deals and “re-platforming” others using different software.

The revenue opportunity they should seek is about 1% of sales—“however much SC Johnson or Pepsi, sells in your store, you should be able to capture about 1% of that number in advertising investment from that company—as long as can you prove results,” Turner says. “One of the things [we’re] hearing is that a lot of CPG brands are frustrated because they’re having these asks come in, but they can’t support that with their budgets. And part of it is that if you don't have the results to prove out the ROI, then of course, you’re not going to get that kind of budget.”

But that little extra revenue can go a long way. Save Mart, to name one, is trying things like in-store restaurants it might not have tried doing were it not for the extra revenue it was realizing from partnering brands.

“If you look at what Amazon was doing, they were constantly investing in innovation. And they use that to drive better economies of scale for better consumer experiences, which created this very positive flywheel versus those who haven’t been able to do that because they only have a 1% to 2% net income margin,” Turner says. “A lot of retailers just don't have the money to take a flyer and try a lot of those experiments. And so, what we see is that if you can actually generate some cash flow from this retail media network, then you’re able to try a lot of those more experiential retail opportunities.”