Topics Covered: March 27, 2023
- Fraction of a fraction fallacy in retail media
- AI’s iPhone moment
- Ranking data sharing by retail media
- New Amazon DSP metrics research
- Too much data, too little insight
- Amazon delivering from stores
- Chewy expects continued discretionary weakness
We just need a fraction of a fraction...
Launching a retail media network is the path towards riches.
Put simply, retail margins are measured in the single digits compared to double digit media margins. Retailers have jumped on this opportunity as site traffic has grown two, three, four, even five times higher compared to pre-pandemic.
Of course, it’s smacking them in the face.
After all, Amazon has done it to the tune of $38B, financing their entire retail model. Walmart followed, generating $2.7B and highlighting how this effort is fundamentally reshaping its margin profile.
Retail rivals look at this and can’t help but dream about what a fraction of a fraction of this success would do to turn their margin decretive eCommerce sales into a profitable venture. This type of thinking happens to entrepreneurs worldwide - “If we only get a tiny bit of (you name the) market, we’ll be rich”.
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For the Nerds
AI’s iPhone Moment: Jensen Huang, Nvidia’s founder and CEO, describes ChatGPT as AI’s iPhone moment. From the interview:
- “Not one executive that I know, not one, has not been awoken by ChatGPT…”
- “A lot of companies are asking themselves, ‘What does this mean? What does this mean to us? What does this mean to our industry? What does this mean to our competition? What does this mean to our products? What does this mean to our business model?’”
- “…it has created a new computing model where the way you program the computer and the applications that you can build with this new computer and the accessibility of this computer, meaning the people that can actually put it to work, is all brand new!”
These are bold proclamations that frankly seem more believable than the fever dream of crypto and the metaverse two years ago.
Every company, regardless of industry, should be digging in here. (Stratechery)
Brands rank retail media data sharing: Consumer brands ranked Kroger, Walmart, and Instacart as the top three retailers when it comes to the data they share regarding their retail media networks, according to the Path to Purchase Institute.
As we outlined in today's main essay, retailers can stand out by helping brands understand how their retail media is performing, as this is critical to brand stakeholder efforts winning internal buy-in for more budget.
As the chart demonstrates, there is still a meaningful runway to improve data sharing, as 11 of the twelve measured had less than half of their advertisers rating them as excellent or good from a data sharing perspective. (P2PI)
Amazon DSP metrics: 9 in 10 1P brands Stratably has benchmarked are currently using Amazon DSP. However, answering "how's it going?" can be challenging with DSP because of its use across awareness, consideration and purchasing goals.
Acadia developed a report and accompanying webinar to lay out all the DSP metrics that are possible, and the ones that they see as most helpful.
Three questions a metric must answer include success in the current stage, if the ad is pulling the customer closer towards purchase, and insight to improve the ad itself.
Media ROI is important for every brand, as is minimizing the margin pressure inherent with selling on Amazon at the current moment. Clarity to what you're trying to drive along with the right metric to measure against that goal help both of these goals, particularly if the metrics can be compared to Amazon DSP alternatives in the market. (Acadia)
Too much data, too little insight: "…33% of business leaders said they can’t generate meaningful insights from their data and 30% said they were overwhelmed by the sheer volume."
A takeaway from the CAGNY conference was that CPG organizations are clearly developing the first-party data collection ability, but it’s less clear the value of that data and how they are putting it to work.
There's also the issue of retail media data sharing (see above) and fragmentation, resulting in the inability to effectively measure opportunity and performance across networks.
This will be a major area of innovation in the retail analytics space over the coming years, but in the meantime, advertisers are struggling. (WSJ)
Amazon delivering from Rite Aid: Amazon announced plans to expand its Instacart-like delivery from store fulfillment service to Rite Aid customers in Newark, NJ & Burbank, CA. The pair plan to expand the offering further in ’23.
This latest announcement builds on Amazon's small but growing omni-enabler partnerships with Save Mart, Cardenas Markets, Bristol Farms, Bartell Drugs, and Pet Food Express.
It remains small because either Amazon is "learning" how to do this well, or it’s a reflection of the steep challenge it faces convincing retailers to work with it. Something Instacart, DoorDash, and Uber don't face, although Walmart and its Spark program might.
The interesting long-term opportunity for Amazon will be if it can expand its store analytics capabilities to omni-store partners to help link online ad spend to offline sales influence. (Winsight)
Chewy expects discretionary weakness thru ‘23: Chewy revenue grew 13.4% Y/Y in 4Q, a slight deceleration from 14.5% in the prior quarter. Active consumers declined 1.2% compared to 0.6% growth in the prior quarter. Autoship (73% of its 2022 revenue) grew 18% Y/Y for 2022.
Key initiatives include expanding internationally, transitioning to more automated FCs, and a full launch of a sponsored ads offering (beta launched in 4Q).
Chewy indicated discretionary hardgoods remain weak and it's not anticipating a rebound in '23.
The company commented on how it's approaching demand elasticity: "…considering the magnitude of price increases that consumers have already experienced and may yet continue to experience, we will continue to take a surgical approach to optimize pricing. Additionally, with supply chains recovering, we are closely monitoring our catalog to ensure we remain competitive in light of current consumer mindset. At this point in the year, we expect the overall result of these drivers to produce a net-neutral impact on gross margin in 2023." (Chewy)