The rise of supermarkets as new media giants
With millions of customers, retailers are using advertising and loyalty data to help boost revenues.
In the final weeks of the year, social media becomes awash with posts from Spotify subscribers sharing their most listened to songs, artists and music genres.
The streaming service’s marketing tool, Spotify Wrapped, has become a popular way for users to brag about their listening habits or mourn over how their account has been hijacked by their young children.
It has also proved to be a gold mine for data, allowing Spotify to connect advertisers with the right listeners.
The campaign has become so successful that it has spawned a slew of copycat versions, with Britain’s biggest supermarkets among those jumping on the bandwagon.
The trend, based on data from loyalty programmes such as Tesco’s Clubcard and Sainsbury’s Nectar, highlights efforts by supermarkets to tap into the cultural zeitgeist.
Yet it also exposes a deeper trend gripping retail. As supermarkets hunt for new sources of revenues in an age of rising costs and ever-narrowing margins, they have stumbled on one of their most valuable assets: data.
With ecommerce on the ascendance and ad spend moving ever further online, retailers are cashing in on a treasure trove of detailed customer information linked to loyalty cards.
Now, a new form of advertisers has sprung up, and turned supermarkets into the new media behemoths in the process. “It is a very, very personalised, targeted method through which suppliers can market towards their shoppers,” says David Sables, chief executive of Sentinel Management Consultants.
“Not just that, but they can also find out the results of what their money achieved. It’s an unbelievably useful, game-changing marketing tool.”
Supermarkets have a long history of squeezing more money out of their suppliers through marketing.
Since the 1980s, many stores have charged so-called “slotting fees” that guarantee prominence on the shelves, while brands frequently pay for promotional displays that help their products stand out to shoppers.
Analysts say this commercial activity can make up as much as 10pc of profits for major supermarkets. In recent years, many retailers have looked to expand their footprint in media.
In November last year, Tesco revealed it had installed its 1,800th advertising screen across its store estate, up from just 400 last March. It has also become the first supermarket to introduce advertising on its handheld scanners.
Sainsbury’s, meanwhile, is planning to double its in-store screens from 320 to more than 800, while Morrisons last week rolled out a new trolley advertising network across its stores. In-store advertising has the benefit of promoting new product launches and deals to shoppers right at the point of sale. Yet it is only the tip of the iceberg when it comes to the opportunities lying in data-driven marketing.
The concept is simple – with millions of regular customers, supermarkets are uniquely positioned to tap into a vast trove of data by tracking what shoppers buy and when they buy it. This helps not only by building up a detailed picture of customer habits, but also allows supermarkets to offer this data up to third-party brands for advertising in-store or online. Many observers point to Amazon as the pioneer of this media format. The US tech giant held a 54pc share of the digital retail media market last year, according to GoWit Technology. More recently, the pandemic helped to accelerate the shift to ecommerce, while the looming death of web cookies, which help to track users across the internet and are crucial to online marketers, has placed a far greater importance on first-party data such as that held by retailers.
Over the past few years, UK supermarkets have begun to catch on.
“Many retailers are battling increased logistics costs, excess inventory and a myriad of other cost pressures post-Covid,” says Alex Walker, managing director of Havas Market UK. “Retail media will be seen as a potential quick win.”
At the heart of this are loyalty cards, which effectively push customers into handing over data in exchange for discounts. Other innovations, such as emailed receipts, also help to link shoppers to their purchases.
With more than 21m customers on its Clubcard programme, Tesco is often seen as the trailblazer in this area.
“We’re brilliantly placed to give our customers a tailored shopping experience, meaning they can get the products they want, whenever and wherever they need them,” says Nick Ashley, Tesco’s director of media and insight. “For our advertiser partners, it provides them with a powerful way to reach their customers more effectively in store, online and with our growing range of media partners.”
In 2020, Sainsbury’s merged its loyalty programme with in-house marketing agency i2C to create Nectar 360. It expects incremental profits of £100m from this business in the three years to March 2027. Meanwhile, the attraction for brands is clear. Unlike in other media formats, advertisers are able to target who they want to speak to and see what impact their campaign has had on their spending habits.
Sam Knights, chief executive of Shopper Media Group, which specialises in retail media, describes the format as the “holy grail” for brands. “They can see exactly who they want to talk to, they can reach them at all parts of their customer journey really efficiently, and then they can see what they went on to do,” he says. “This means they can understand the real return on investment.”
Simon Roberts, Sainsbury’s chief executive, this week said brands could benefit from a much higher return on investment compared to traditional advertising “because what you’re doing is able to talk to a much more targeted group of customers”. Industry observers believe there is big money to be made. Goldman Sachs expects the UK retail media market to be worth £2bn this year, while industry body Warc says the format is outpacing growth in social media ad spend.
Analysts also point out that retail media is currently largely restricted to consumer brands trying to target customers at the point of sale, leaving a huge untapped potential for other sectors. For example, someone’s shopping habits may give an indication of when they are about to move house – information that could be valuable to an estate agent or mortgage broker.
Retail media is not without its drawbacks, though. First, the shifting media spend is likely to come at the expense of other forms of advertising, especially those that are less targeted.
Digital marketing group IAB predicts that retail media spend will overtake traditional TV spend across Europe by 2026. “Certainly I think you will see people moving money out of the sort of broader reach campaigns, where they couldn’t tie the data together and understand the effectiveness,” says Dan Larden, head of media at ad industry body ISBA.
Meanwhile, the rise of supermarkets as new data giants could pose a further threat to traditional advertising groups, which are already contending with the rise of social media behemoths such as Facebook and Google. WPP chief executive Mark Read insists that retail media is a “very strong growth opportunity” as the ad group can advise its clients on how to make use of the data. Analysts also warn that supermarkets risk alienating customers if they pursue media tactics too aggressively, especially when it comes to loyalty cards.
“A lot of retail businesses have moved to a situation where you’ve got no choice but to opt in,” says retail analyst Jonathan de Mello. “There’s a danger that consumers will get bombarded by too much media on the back of providing their data.”
This, in turn, could pose an issue for trust if customers feel supermarkets are simply pushing them products from the highest-bidding supplier.
Ad executives point out that this is no different from what shoppers have been doing for decades with in-store promotions, while they argue that retail brands are far more trusted by consumers than many other datahungry advertisers. After years of gathering data from their customers, supermarkets have opened the floodgates to a wave of retail advertising, and the new generation of Mad Men is ready to cash in.
‘For our advertiser partners, it provides them with a powerful way to reach their customers more effectively in store, online and with our growing media partners’