State of Digital Grocery: The Media Monetization Opportunity

This is a summary of the key findings of the report. The full report can be downloaded here.

What's In The Report?

Grocers want new growth avenues: Grocers are looking at new revenue opportunities as negative digital margins, changing shopper behavior, and an uncertain macroeconomic environment squeeze them

Media monetization is a focus: Monetizing media assets (physical and digital) represents a significant and immediate opportunity, and most grocers are actively evaluating it

Execution is difficult. Talent is scarce: Grocers aren't setup to monetize their media assets. They must invest in talent, technology, and partnerships to build an effective platform

Digital grocery operations are unprofitable

Macroeconomic headwinds, a fundamental change in shopping habits, and competitive dynamics in grocery retail are driving this urgency.

Historically, growth in grocery retailing is glacial. On average, sales growth is 2.7% year over year.  In fact, in the last three decades, sales have grown more than 5% (y-o-y) only once (2011). In 2020, sales more than tripled average annual growth to 9.5%! The main driver of this growth was the rise in digital sales, which were up more than 5x over 2019. 

As has been well documented, digital’s unexpected growth came by way of a global pandemic that effectively shut down the world. People still needed groceries and other essentials, but with lockdowns and ‘shelter in place’ orders, the only way to shop was online. This drove digital adoption by new shoppers, increased online basket sizes and forced grocery retailers to rapidly adopt and scale new capabilities (e.g third-party partnerships, curbside delivery, etc.).

This growth, however, has come at the cost of profitability. With digital projected to rise to 20% of overall sales by 2025, grocers will need to focus their attention on improving their digital execution.

Grocers are looking for new revenue streams

Grocery retailers are looking at new revenue streams in the face of inflation and digital unprofitability. Almost all grocery retailers (86%) acknowledge that they need to add new revenue streams, and a majority (71%) are actively evaluating new growth areas. Investment in proven strategies like private label brands will continue, but we will see new experimentation and innovation in relatively new areas:

Grocerant + Food Delivery: With the share of digital food sales (restaurant and grocery) rising, grocery retailers are looking to scale their Grocerant concepts and expand partnerships to support food delivery.

Subscription Models: Grocery retailers are looking to evolve their loyalty programs with subscription bundles that provide additional revenue and increase shopper loyalty. These subscription bundles are focused on reducing delivery costs and discounts on fuel and private label products.  

Media Monetization: Monetizing shopper behavior data is a significant opportunity for grocery retailers, and media monetization represents a clear and immediate opportunity.  

Media monetization is a priority for most grocers

With the share of digital sales projected to rise to 20% of all grocery sales, and with shoppers using digital assists across their physical shopping journey, grocery retailers now have a highly engaged digital audience.  

Grocery retailers view this as a significant opportunity and believe it can increase their advertising sales by as much as 27%. Media monetization represents a multi-billion-dollar growth opportunity, and 63% of grocery retailers are actively looking to deploy a platform within the next 24 months. Most grocery retailers actively evaluating this opportunity will partner with existing platforms to build their offering (70%), and the remaining (30%) will try and build their own.

The three core components that retailers need to focus on are:

Omnichannel Loop: Track shopper behavior across all owned channels (store and online).

Shopper Intentionality: Understand shopper intent based on current and past behavioral data.

Personalization: Ability to personalize offers and content for shoppers across channels.

However, third party delivery partners could capture the pie

Third-party delivery partners accounted for 28.4% of all digital grocery sales in H1 2022 and continue to show traction even as shoppers exhibit higher price sensitivity. These digitally native companies have built a robust and engaging digital shopping experience but are still unprofitable.

As they pivot and test parts of their business model (grocery technology platform, last-mile delivery service, advertising platform, online-only grocery), their focus on media

monetization/advertising will intensify. Advertising provides an established business model for them to add revenue quickly, and they have the required talent to expand these capabilities.

This opportunity will lead to friction between grocery retailers and their delivery partners.

Grocery retailers are (rightfully) afraid of being disintermediated by these platforms. They understand that advertising dollars that go to these platforms from their CPG partners will come at their expense. Finally, grocery retailers acknowledge they can’t compete with these digital-first players in building a better media monetization platform.

CPG firms require greater proof of performance for additional spend

Brands are bracing for a challenging economic climate by tightening their discretionary spend and increasing diligence across all areas. 88% of CPG firms want more accurate proof of performance for their advertising dollars, and just 11% will significantly increase their non-brand/corporate advertising spend in 2023. Brands are also looking to consolidate their media buy over the next 24 months and will reduce their partners by about 17%.

Most marketers are thinking about their media and advertising strategy in a cookie-less world, and getting access to more and better first-party data is a priority for all. We will see a short-term spurt in building first-party data access, and deciding where and with whom (grocery retailer or third-party partner) to spend will come down to the following:

Access: Providing granular data on shopper behavior and media performance.

Accuracy: Confidence in media effectiveness methodology and accuracy.

Actionability: Ability to target more effectively and act more quickly.

Using data effectively is the core driver to uncovering shopper intentionality

Building an end to end media platform is hard

While media monetization is a multi-billion-dollar opportunity for the industry, grocers are ill-equipped to capture it. Building a new business from scratch isn’t easy, even when extending the core business. Building a new business with little to no adjacency is very hard.

The operational capabilities required to support a media business are getting disparate data (across all channels) together on a robust technology platform that integrates with other external digital partners.

But the core problem isn’t the platform. The core problem is talent.

Grocery retailers don’t have the in-house talent and experience required to understand the nuances of the media business. Building this will mean going head-to-head in a war for talent and having the cultural awareness to foster a very different kind of organization. Talent availability, not engineering, will determine the path (ignore, build, buy, partner) grocery retailers will take to monetize their media assets.

Grocers need to focus on the following areas to build an end to end platform

Talent

• Grocery retailers don't have the required talent or experience in managing a media business
• Invest in leadership to build this organization
• Establish robust governance processes to manage the fine line between autonomy and connectedness with the rest of the business

Targeting

• The ability to target with precision and personalize based on intent will be a core capability
• Grocer retailers must invest in a strong data infrastructure that can serve as the backbone for advanced segmentation across channels and other partners
• This needs to be supported by a robust shopper privacy policy

Trust

• The ability to accurately measure media performance and transparently share it with partners
• To build confidence with their CPG and advertising partners retailers must provide relevant data access and tools
• Partner tools need to be scalable and intuitive for CPG marketers and agencies to use

Transformative

• Traditional media units/types are undifferentiated and saturated
• Product innovation needs to take center stage. Grocery retailers need to explore and build new products, such as - shoppable videos, cooking guides, interactive recipe discovery, AR placements, custom landing pages, video ads, etc.

Research overview

Grocery Doppio conducted research to understand how US grocers and their CPG partners view the current opportunity and challenges in monetizing retail media.  The analysis was conducted from July 2022 - August 2022.

This is a summary/excerpt from the report. To download the full report, fill in your details below.

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