First — the Retail Leapfrog Series is back by semi-popular demand, but this time in the form of a newsletter. It turns out I have a lot more to say that nobody else is talking about. On Sunday mornings I'll be pouring my thoughts into helping new-and-emerging retailers leapfrog competitors in the retail media game by learning from the mistakes and thought processes we had at Walmart and other retailers over a 15+ year period (before it even had a name).

The target for this newsletter is not retail media people — although it'll certainly help frame things with your partners. Rather, this is for you merchants, retail marketers, and operators — because you are the lifeblood of retail. Share with your friends.

Today we're going to talk about retail trade spends, their apparent fungibility with other supplier spends, and the risks in that to retailers. I saw some real data on this topic, and I think I may have had at least part of this equation wrong.

If you haven't read it, I wrote about Trade vs. Shopper vs. Brand dollars against an underlying assumption that these dollars are all fungible and therefore retailers can dictate the terms. Specifically: that all three types of funding are important to the symbiotic retailer–supplier relationship, and that you as a retailer are not entitled to all of that money unless you have the right mechanisms to support it — because today these dollars are intentionally assigned to specific activations.

Part No. 01Dear merchant friends, you were right.

This post isn't about the distinction in budgets per se, but rather the fact that those budgets are actually shifting — at least according to a 2021 Kearney study on retail media by Katherine Black and Nora Kleinewillinghöfer.

Kearney Figure 2: CPGs have begun shifting trade funds and investments from other channels. Of ~$250Bn total CPG brand spend, trade fell from 59% (2019) to 54% (2021E), a -5 point shift to $135Bn; digital rose +6 points to $65Bn; traditional fell to $35Bn; shopper held flat at 6% / $15Bn.
Trade is >50% of brand spend but decreasing — a 2-year shift toward digital · Kearney analysis, Cadent 2020/2021 Marketing Spending Industry Study

I'm sure there's more updated data out there, but this chart (reposted and summarized recently by Don Brett) most perfectly encapsulates the shift. I can only assume it's become greater as we scale out retail media. Worth noting: the total dollars remain flat, but how CPG brands invest is changing at a macro level.

After all the years I spent yelling "THEY ARE DIFFERENT BUDGETS" into a void, I think I may have been wrong — and I'm sorry, merchant friends. At a CEO level, it seems CPG dollars are a bit fungible. Oopsies.

Part No. 02If it's one big bucket, keep it in trade… right?

As a merchant, this makes sense to me — if I can keep the dollars in trade, it goes into things I control. It lets me offer great prices to my customers, supports the things I want to focus on to get my comps, pads my P&L (which I'm incentivized on), and the way I spend those monies has historically worked.

But from a brand perspective, I'm not so sure. As a brand, can I truly get quantifiable value from my trade investments? Some retailers charge slotting fees, some charge for eCommerce fulfillment, some charge for innovation or access to merchandising tools or flyer inclusion. I'm often blind to the outcomes — not in control of those spends — and I sometimes see those dollars going to grow my competitors' brands.

Regardless of how we want the dollars to come in, the dollars ARE shifting to things that offer brands more control and visibility — and that has massive implications for retailers, the role of a merchant, and our customers.

Part No. 03Is the shift a good thing?

I was initially inclined to say yes — because it rebalances the equilibrium between retailer and brand and forces both to focus on what's right for their connected but mutually distinct organizations. But when you go back to the original purpose of trade, it was a 'tide raises all boats' proposition — and more importantly, it often served to reduce costs for the customer. In that, it's incredibly important that trade maintains its dominance in the retailer–supplier relationship.

As an extension of that point, it's worth highlighting one other slide in the Kearney report:

Kearney slide: while tapping further into trade requires proximity to physical shelf, digital spend has more room for expansion. Trade vehicles ($135Bn) like price discount and physical display sit close to the shelf (low independence); digital vehicles ($65Bn) like social, video, sponsored search and email rank high in independence from physical shelf space.
Where the dollars are shifting is highly independent from the physical shelf · Kearney

First, this slide clearly articulates the distinction in funds — suggesting they are in fact different. It also highlights the 'independence,' or proximity, certain promotional vehicles have to the physical shelf. (I'd argue the distinction between a digital and physical shelf is unnecessary, so for buckets like 'Sponsored Search' we should put an L beside it — search ads are close to the shelf.)

What this makes me realize is how much of the 'new' in retail media is beginning to move away from the shelf — CTV, offsite media, DOOH. Sure, it might be powered by shopper data, but it's distinctly separate from reaching a customer in a shopping mindset.

Back in 2009 when I first started at Walmart, I used to say: "brands spend all this money promoting themselves on TV and radio and social, but when it comes to the shelf, they divorce themselves from the conversation." You invest all your marketing in non-shopping vehicles, and when a shopper reaches the #FMOT, you're nowhere to be found.

If the true power of retail media is communicating with the right customer in a guaranteed shopping mindset, then as we push further outside the core shopping experience, we start to lose some of that special sauce.

Part No. 04Before everyone gets mad at me.

We're not there yet — not even close. In my [expert opinion], any given retailer's 'fair share' of retail media investments should sit in the realm of 1% of gross revenue. At that stage it's mostly a shift in 'shopper,' not a true 'incremental' investment — so you should not see any movement in trade investments, and if you do, you should push back.

~1%
of gross revenue — a realistic retail media 'fair share'
<0.25%
where most retailers actually sit today
$45BN
Amazon's retail media business, pulling spend from everywhere else

Past 1%, you have to reach a level of sophistication where you can tap into truly 'incremental' budgets (the 'brand' budgets) and compete with the likes of Google. What's important in all of this:

Most importantly, much of the need for a shift from trade to retail media is coming from the massive dollars flowing into Amazon ($45BN in their retail media business today). It's entirely possible that if you're seeing a degradation in trade investments, it's because brands are spending so much on Amazon that they're forced to limit spending elsewhere to do so.

Closing thoughts.

It appears there is in fact some fungibility between buckets of funding on the supplier side — but as a retailer, it's not enough to try to capture it solely in one bucket. You need to be offering retail media and shopper marketing solutions if you want to capture funds in those buckets. If you don't, those dollars will absolutely go to fund your competitors' businesses.

As we scale retail media, we need to be very intentional about which advertising vehicles we play into — against the lens of the broader retail business — so we don't ultimately impact the cost of goods for our customers.

If this resonated, share it with a merchant friend, comment, push back. And subscribe to the Retail Media Leapfrog Series for more.