Walmart wants to expand its reach in online advertising

Walmart Inc. is big in almost every way – 4,755 stores, 1.5 million employees and $380 billion in revenue in the United States alone. But part of the world’s largest retailer remains tiny.

“We have a small advertising business,” CEO Doug McMillon told investors in October. “It could be bigger.”

Walmart ranks #2 on the list of Top 100 Private Carriers in North America.

With about 300 million shoppers visiting its stores each month, according to Forrester Research, and millions more on its websites, Walmart attracts more people than Google, Facebook or Amazon. This audience and the purchase data they generate is catnip for big advertisers like Coca-Cola Co. and Kraft Heinz Co. But Walmart and other retailers have historically not done enough to convert this data into dollars, especially online.

After seeing Amazon.com build a massive ad business, brick-and-mortar stores are looking to follow suit. Walmart, Target Corp. and grocery chains Kroger Co. and Ahold Delhaize are quietly courting big brands with a sales pitch that goes something like this: Facebook might know what your customers like, and Google might know what they want, but only we know. what they actually buy.

“They have a great story to tell advertisers,” says David Tiltman, chief content officer at WARC, an ad analytics firm. “What we’re seeing now is a more sophisticated approach to ad selling than retailers have had in the past.”

The push comes at a critical time, as mainstream retailers are under attack like never before from Amazon, big discount chains and digital startups embraced by coveted millennial shoppers. Walmart and others have responded by spending billions to spruce up their own websites and develop services such as home delivery, but these investments reduce revenue. Favorable retailers benefited last year from tax cuts and strong consumer demand will dissipate in 2019, and looming Chinese tariffs could further cloud the outlook.

All this uncertainty makes alternative revenue streams crucial, especially for grocers, which generate much lower margins than, say, fashion or luxury retailers. Kroger aims to generate $400 million in additional profits by 2020, some of which will come from a new marketing unit that places web ads for companies like Unilever and General Mills Inc. Target’s internal media network has hundreds of customers, including the Oreo cookie maker. Mondelez International. Walmart has hired executives from NBC Universal and CBS to help boost its ad business.

walmart

The potential is vast: last year, advertising sales in the United States hit a record $208 billion, according to researcher Magna, and, for the first time, 50% of that spending was online. Facebook and Google combined gobble up more than half of those digital dollars, according to data tracker eMarketer, while Amazon gets just 5.5%.

It’s an opportunity for retailers, who already have longstanding relationships with major consumer brands that quietly pay them millions each year for prime shelf space. These brands are also siphoning off marketing dollars from traditional ad agencies, as evidenced by last week’s surprise drop in sales from French advertising giant Publicis Groupe SA. But Walmart and its ilk will have to act fast: Amazon’s ad business doubled in size last year, and 97% of brands that advertise on Amazon find it valuable, according to a survey by Feedvisor, which sells advertising and pricing software used by Amazon sellers. .

Retailers have already tried to capitalize on advertising. About 20 years ago, Walmart unveiled its own in-store television network that aired product announcements, movie trailers and music videos. In 2004, Walmart TV had 180 million monthly viewers, but the advent of digital media has disrupted its channel the same way it has disrupted traditional networks. Now retailers combine data gathered from purchases and loyalty with analytics tools that promise advertisers a better return for their buck. Take Coca-Cola, which is currently running two campaigns with Peapod Digital Labs, a new entity formed by Stop & Shop owner Ahold Delhaize last year to drive its online growth.

Coke

Chris J. Ratcliffe/Bloomberg News

Previously, Coke would have worked with a digital media company that relies on third-party data “which would get us closer to the pin, but not close enough,” says Jim D’Isidoro, director of customer marketing for Coca-Cola Americas. North. . Now, using data from Ahold, he knows if the ad resulted in a sale among the customers he targeted. With Ahold, “we will have a better idea of ​​our return on investment, and that encourages us to invest more”.

Coke is not alone. “Many consumer products companies are looking at their marketing spend and thinking the retail ecosystem might be a better place to spend it,” says Bryan Gildenberg, chief insight officer at Kantar Consulting. These internal media networks will become a critical part of retailers’ business models, Forrester predicts, as they draw customers away from established advertising agencies.

If that sounds like overkill, consider Alibaba. The Chinese e-commerce giant already derives more than 60% of its revenue from advertising and last year took a stake in a digital advertising company. “The way forward for many retailers will be about being creative and making profits in other ways,” says UBS analyst Michael Lasser.

As they continue down this path, however, Amazon’s advertising network will continue to flourish. The online giant’s executives said in January they saw potential for advertising not just on Amazon’s sites “but also potentially beyond” that is, across the web, in Whole Foods Market stores and even on their ubiquitous delivery boxes. For traditional retailers, advertising is another front in their battle with the online giant.

“In an Amazon world,” says Tory Gundelach, a former Target and Kroger executive who is now at Kantar Consulting, “retailers need to make money beyond just selling products.”