AI in Grocery: Exploring AI's Impact on Retail Media

Grocery Doppio’s second AI in Grocery virtual event delved into the state of retail media, exploring opportunities and challenges, and discussing future advancements in this disruptive technology. Our recently published report, "State of AI in Grocery 2024," revealed that digital influence played a significant role, with 71% of all grocery sales in the first half of 2024, signaling a transformative shift towards omnichannel experiences.

Shoppers are demanding more value from their grocery spend, making retail media a C-level priority for grocers, as evidenced by our report indicating that 69% of C-suite executives find it crucial. The retail media market in the grocery sector is projected to reach $8.5 billion in 2024.

We examine the current state of retail media, innovative practices adopted by grocers, and key considerations for retailers and brands in this ever-evolving landscape. AI integration across all functions is a crucial catalyst for these changes, with an estimated $136 billion increase in industry value by 2030.

On Day 2 of the highly anticipated AI in Grocery event, Manish Sharma, Co-Founder and CMO of Think Blue, and Parag Shah, Chief Growth Officer of Think Blue, shared invaluable insights into the state of retail media and the implications of AI for brands, highlighting the vast ocean of opportunities and strategies for navigating them effectively.

State of AI in Retail Media - Opportunities and Challenges  

What is the state of retail media and opportunities for retailers?

Shah highlights that retail media presents a significant opportunity, but its success relies on the right thought process and strategic go-to-market planning. He emphasizes the importance of commercial planning and maintaining a unified view of the consumer, with retail media playing a crucial role as both a component and a growth driver within this framework.

Shah notes that while the opportunities in retail media are vast, the industry faces pressing issues like inflation and supply chain challenges, which continue to concern senior executives. Despite these challenges, he insists that retail media should remain a top priority for organizations. Integrating retail media into their commercial ecosystem can deliver substantial value to customers and drive the growth brands seek.

His perspective underscores the need for a strategic approach to leverage retail media, ensuring it is embedded effectively within broader commercial planning to maximize its potential and address the ongoing challenges in the industry.

Sharma highlights the evolution of retail media, noting that it has progressed from a nascent stage to a highly advanced one in recent years. For brands, participating in retail media is now essential to influence the path to purchase. However, he emphasizes that success depends on how brands engage with these platforms, as not all platforms or brands possess the same capabilities. Winning in this space requires aligning the maturity of retail media platforms with the brand's own capabilities. He stresses the importance of being consumer-centric, given the highly fragmented nature of consumer behavior and the increasing role of retail media in shaping purchasing decisions.

To navigate this landscape,brands need to start by testing and learning. He recommends dipping a toe into retail media, running small tests to gather insights, and scaling successful initiatives while reworking or discarding those that do not perform well. He also highlights the necessity of adopting a growth mindset, noting the rapid evolution of this space and the need for continuous education and nimble learning within organizations to stay competitive.

Innovative Retail Media Practices in Grocery

What are some examples you've seen of groceries doing innovative or interesting things with retail media that are adding value to the shopper?

Sharma emphasizes that in the past 8 to 10 months, volume growth in the grocery sector has been challenging, with most growth driven by price increases. He stresses that adding value is crucial for achieving true volume growth. He defines value in two key ways: monetary value, such as discounts and promotions that help meet shopper’s needs, and experiential value, which enhances the consumer's life. He notes that today's consumers seek frictionless, experiential, and omnipresent shopping experiences. Platforms and brands that facilitate these integrated, immersive, and intelligent experiences are providing significant value to consumers. Additionally, with inflation affecting prices, brands are helping by offering basket-level discounts and supporting various shopping missions.

Shah adds that from a retailer's perspective, value can be defined in several ways, including pricing and simplifying customers' lives. He highlights the rapid expansion of private brands as a key area where retailers are adding value through promotions and competitive pricing. Shah sees retail media as a significant opportunity for brands and retailers to partner and deliver targeted value to specific customer segments. By leveraging retail media, brands can effectively reach their target audiences and build relationships, providing non-financial value such as inspiration and engagement.

Technological Integration and Future Potential

Shah elaborates on the technological capabilities of retail media. He believes that if used effectively, retail media technology can serve as an additional resource to deliver inspiration to shoppers. However, he notes that retail media in-store must integrate with existing practices such as visual merchandising and display planning. The transition from online retail media to in-store applications presents challenges but also significant opportunities. 

Media Attribution 

What are the key areas to check during media attribution to ensure accurate and effective measurement of campaign performance?

Sharma highlights the significant challenges in media attribution within retail media, emphasizing the importance of measurable outcomes. He points out that traditional ROI metrics often fall short in providing the necessary transparency and measurability that brands seek. The fragmented nature of consumer journeys, where online and in-store experiences overlap, complicates the attribution process. Sharma advocates for using incrementality as a key measure, suggesting that platforms need to provide clear and trustworthy incremental lift data to demonstrate the effectiveness of retail media campaigns. He also notes the importance of customized marketing mix models that can offer a detailed view of touchpoints within a retailer's ecosystem.

Shah builds on this by stressing the need for retailers to deliver incrementality to brands. He argues that many variables influence why a customer buys an item, and understanding these through incremental lift is crucial. Shah highlights that successful retailers, like Amazon and Walmart, have sophisticated systems in place to demonstrate incrementality to brands, thereby securing additional funding for retail media efforts. He shares an example where a platform achieved a 15% incrementality in paid search through a robust test and control exercise, showcasing the potential effectiveness of well-executed retail media strategies.

Recommendations for Effective Retail Media

Consumer-Centric Approach - Both experts emphasize the need for a consumer-first strategy. In a fragmented and rapidly changing market, focusing on consumer needs and preferences is crucial for success.

Strategic Ecosystem: Building a strategic ecosystem involving retailers, brands, and agency partners is essential to navigate the complexities of modern retail media. This collaborative approach helps in adapting to market changes and solving emerging challenges effectively.

Testing and Learning: Start with small tests to understand what works and scale successful initiatives. This iterative approach helps in refining strategies and achieving better outcomes.

Incrementality Focus: Demonstrating the incremental value of retail media investments is vital. Retailers need to provide clear and transparent data on the incremental lift to gain trust and additional funding from brands.

‍AI Integration for Brands and Retailers 

What are the key considerations for brands and retailers using AI 

Sharma emphasizes that AI has evolved from a buzzword to a valuable tool with actionable applications. Brands are leveraging AI in multiple areas to enhance their operations and customer engagement.

Identifying Valuable Consumers: AI helps brands pinpoint their most valuable consumers by analyzing extensive data points. This capability allows for more efficient and effective marketing strategies tailored to high-value segments.

Personalized Experiences: AI plays a significant role in creating personalized and immersive experiences. Brands can use AI to develop content and marketing messages that resonate with individual consumer profiles, thereby enhancing engagement and satisfaction.

Closing the Loop with Data: AI aids in synthesizing various data points to understand the effectiveness of marketing efforts. By analyzing objectives and outcomes, AI helps predict future trends and performance, providing brands with actionable insights.

Shah highlights several innovative uses of AI in the grocery sector-

Personalized Marketing and Loyalty Programs - Brands are using AI to enhance personalized marketing efforts and strengthen loyalty programs. AI helps tailor promotions and recommendations to individual customers, improving engagement and retention.

Inventory Control and Supply Chain Management - AI is crucial in optimizing inventory management and supply chain operations. Automated restocking and accurate demand forecasting reduce working capital costs and improve product availability, enhancing customer satisfaction and strengthening relationships with suppliers.

Customer Service -  AI-driven chatbots and automated customer service solutions help reduce friction in customer interactions. These tools handle routine queries effectively, allowing human agents to focus on more complex issues, thereby improving overall service quality.

‍Projected Applications for Retail Media  

In-Store Operations - AI can enhance operational efficiency and create curated shopping experiences in physical stores.

Product Development -  By analyzing market trends and consumer data, AI provides insights that help in developing new products and optimizing pricing and promotional strategies.

Sustainability Initiatives - AI supports efforts to meet sustainability targets by optimizing resource use and reducing environmental impact.

As the grocery landscape continues to evolve, staying attuned to customer demands and embracing technological advancements will be crucial for grocers to thrive.