Growth and Transformation of Retail Media in North America

Retail media refers to media operated by retailers. Typical examples include in-store digital signage advertising and online advertising on e-commerce sites. In Part 1 of this series, we explained the basics of retail media. Part 2 features a roundtable discussion with three individuals at the forefront of retail media. They exchanged views based on the latest insights, covering everything from the rapidly growing landscape of retail media in North America to the very essence of what retail media is. (The roundtable was held on December 8, 2022)

<Table of Contents>
▼What is the Essence of Retail Media?
▼Enhancing the Experience Value for Key Customers
▼No One Has the Answer Yet

The Essence of Retail Media

Yagi: Retail media is booming in the U.S. Walmart has started disclosing its retail media advertising spend, and other companies are following suit.

Today, we have Mr. Sugiura, who launched the Retail Media Promotion Department at Seven-Eleven Japan in September 2022; Mr. Iba, who previously served as a marketing executive at a manufacturer and now supports companies with insights on the latest retail trends and technologies in the US and Japan through his company IBA Company; and Yagi from Dentsu Consulting Inc., who supports retail media business launches as part of the Dentsu Group. We will discuss "What Retail Media Brings" and "Where Retail Media is Headed."

Sugiura: I'm Sugiura from Seven-Eleven Japan. In September 2022, we established the "Retail Media Promotion Department," an organization dedicated specifically to advancing retail media. Since then, while driving the organization forward, we've continuously pondered "What is retail media?" I believe that when we find the answer, we'll see one form of retail media tailored to Japan.

Iba: It's been about 12 years since I founded IBA Company. Throughout that time, I've been tracking American marketing information and technology to support Japanese companies.

In the US, over the past few years, retail media has been discussed with strong interest, primarily among manufacturers, retailers, and industry stakeholders. Until 2021, it felt like retail media was largely defined as "providing advertising space and data to manufacturers." However, starting in 2022, I sensed a shift in how its existence and purpose were explained, and in the "perspective" used to discuss it. The impression is that it's now discussed with the fundamental premise that "Retail Media is 'media'" and "it should become valuable media for the customers who see it."

Shun Iba (Iba Hitomi) earned an MA from the University of Massachusetts and an MBA from New York University's Stern School of Business. For approximately 15 years, primarily working at the U.S. headquarters of global companies (Colgate, Palmolive, Kraft, American Express, Fila), he managed projects involving new market entry, business development, product development, marketing strategy, and innovation, leading them to success. Subsequently, after serving as Vice President of the Marketing Division at Coca-Cola Japan, she founded IBA Company in 2010. Currently, as President and CEO of IBA Company, she provides consulting services for corporate business development and DX strategy, leveraging the latest insights in U.S. digital technology, business models, and marketing. Appointed as an Outside Director of DCM in 2022 (current position).

Yagi: Could you elaborate a bit more on the idea that "retail media is 'media'"?

Iba: From 2019 to 2021, retail media was often discussed as a "new advertising medium that helps boost retail revenue." Starting mid-2022, the industry began shifting its focus toward the ideal state for retail media: "becoming compelling 'media' for customers." I sense a quiet shift in the industry's overall discourse: "Retail media also contributes to profitability. However, it should be leveraged to earn the affection of our valued customers and enhance their loyalty, ultimately driving revenue."

When considering retail media, I find the topic of being loved by customers particularly relevant. At conventions and similar events, two key concepts seem to be emphasized:

One is "Relevancy." This means being familiar to customers, making them feel that "they understand me" or "they know what information I want." The other is "Discovery." This means offering something new for "me," a surprise that makes you exclaim "Wow!" I believe retail media is gaining attention as a crucial part of creating such compelling store experiences that combine Relevancy and Discovery.

At the "GroceryShop" convention for the retail industry and brands held in September 2022, there was an increase in sessions where retailers and manufacturers shared the stage to discuss how to make retail media more appealing to customers. Retailers and manufacturers are collaborating as partners, striving to understand customers and create compelling in-store media. I believe a trend of "cooperating for the customer's benefit" is emerging.

Sugiura: Was there a specific trigger for this change?

Iba: Probably, retailers realized that simply pushing manufacturers to place ads wouldn't create content consumers actually want to see. Consumers can choose which media they engage with. Therefore, retail media must become compelling compared to all other media, including TikTok and YouTube. I imagine they came to understand that their competition isn't other retailers' retail media, but the entire media landscape, including magazines and television.

Yagi: I understand completely. In advertising agencies, we're taught from the start that "advertising isn't something consumers choose to see." For advertising to hold meaning for consumers, we must understand the media through which they encounter ads. It's crucial that meaningful customer experiences are built into the path beyond the ad. Media that successfully achieves this is truly compelling.

Regarding retail media, considering the current discussions happening in the US, I think it's better to redefine it as "media that provides customers with new insights."

Enhancing the experiential value for key customers

Sugiura: That said, there's still a significant gap between the ideal and reality. The term "customer experience" is frequently used these days, and there's much discussion about how things should be to enhance customer experience value. However, even when we derive an ideal experience value through such discussions, there's often a gap where customers simply aren't seeking it.

When we launched our retail media business, we said, "We'll enhance customer experience value," and "We'll deliver ads as information to customers, creating a seamless purchasing experience that incorporates products and campaigns." But when we actually started operations, ads and purchasing often remained separate... I think matching these will take a bit more time. Different business models need to come together and think about this collectively.

Katsuki Sugiura joined Seven-Eleven Japan in 1998. He gained experience as a Zone Manager supporting franchise stores in Nagano, Yamanashi, and Western Tokyo. In 2018, he led the launch of a new business company within Seven & i Holdings. Subsequently, from March 2021, served as Digital Sales Promotion General Manager at Seven-Eleven Japan, overseeing the Seven-Eleven App. From September 2022, currently serves as General Manager of the Retail Media Promotion Department, responsible for launching, strategizing, and executing retail media initiatives.

Iba: Recently in the U.S., the focus has shifted from simply "customer experience" to prioritizing the experience of "Important Customers" – those who are crucial to the company. Here, "Important" means customers with whom we can build deep relationships and achieve high medium-to-long-term profitability. Trying to please every customer becomes too complex and makes effective communication and experience creation difficult. Therefore, the focus is on understanding and responding to the thoughts and experiences of customers who are important to the company and its brands. Retail media serves as a crucial contact point for this.

I found something interesting: Walmart, while pushing digitalization, did almost no store renovations. Despite having around 5,000 stores, they kept renovations to the bare minimum. But after customer digital usage surged in 2021, they renovated 1,000 stores in just the past year. They rapidly advanced renovations focused on enhancing the integrated digital and in-store experience, including how retail media is presented. They've announced they'll continue this in 2023. Similarly, Target, the second-largest GMS player, has been advancing similar renovations since 2022.

I believe they are approaching this not just as a simple advertising medium, but considering how to position retail media within the overall store experience, leveraging the store as a stage (the stage that is the shopping environment).

Yagi: Earlier, Mr. Iba mentioned that in the U.S., "a trend is emerging where retailers and manufacturers collaborate as partners to create compelling media for consumers." Historically, retailers and manufacturers often competed strongly through private brands (PB) versus national brands (NB). Now, they seem to be achieving a higher level of collaboration in co-creating sales spaces. Why the shift?

Iba: I believe it stems from a shift in thinking: "Neither PBs nor NBs alone can fully meet customer needs," and "Retailers must collaborate with manufacturers to create more compelling NBs." Discussions about sharing customer data and cooperating for this purpose began around September 2022, starting with specialized retail conventions like "GroceryShop."

Additionally, I believe the current trend is to create distinctive merchandising (MD) appealing to their own customers. This includes incorporating unique D2C Inc. brands and shop-in-shops targeting Gen Z, aiming to create "Discovery" experiences (store experiences involving discovery and surprise) that private brands and national brands alone cannot provide.

We're shifting away from an era where PB and NB were seen as adversaries, moving toward providing customers with a comprehensive shopping experience.

Sugiura: There's always a consistent demand for NB products, and we've learned that without a strong NB offering, PB sales suffer too. So, while striving to enhance the value of our PB, we make sure to stock both PB and NB.

Iba: The joy of choosing is a vital part of shopping, right? Having NB products, cost-effective PB items, rare D2C Inc. brands you want to see in person, and slightly higher-end goods. We want customers to experience the fun of selecting based on their mood or budget at that moment. I believe it's crucial to approach MD with the goal of creating "discoveries that delight our important customers."

No one has the definitive answer yet.

Sugiura: While promoting retail media, I feel we must define what retail media is. What I've found challenging recently is that retailers with physical stores have different customer demographics and usage patterns at each location. This means the nature of the media also varies by store.

Nationwide, approximately 20 million customers visit 7-Eleven stores daily, but they spend only about 3 minutes inside. The nature of media for a 3-minute visit is entirely different from that for a 30-minute stay. The term "time performance" (タイパ) became popular in 2022, and we really need to think deeply about time performance.

For example, even if you install signage at the storefront and run a 6-second ad, customers might not see it. Therefore, the content, delivery method, and essentially the approach to communicating with customers must be carefully considered and tailored for each type of store: convenience stores, supermarkets, GMS (General Merchandise Stores), and department stores. As a result, I believe this will lead to further segmentation by industry and business type.

Iba: I agree. We use the term "Our Important Customer," and I think the "Our" part—meaning "our own"—is crucial. Whether those customers spend 3 minutes or 30 minutes in-store, or how frequently they return, creates significant differences. Being loved by your own customers is vital. I believe the mindset is shifting toward recognizing that it's pointless to imitate competitors targeting different customers just because they're doing it.

Yagi: So in Japan too, retailers and manufacturers will accelerate efforts to develop the services and products customers need, tailored to Japan's circumstances. At that time, effectively leveraging success and failure cases from the US would be beneficial.

Katsumasa Yagi: Studied architecture at Kyoto University and Kyoto University Graduate School of Engineering. His motto at the time was "creating beautiful mechanisms." At Dentsu Inc., he worked in the marketing consulting organization on new business development and service development. Provided services across diverse industries including consumer goods and durable goods. At Dentsu Digital Inc., developed and delivered integrated solutions addressing challenges of the digital age by transforming business, marketing, organization, operations, and IT. Launched the Transformation Consulting division as an Executive Officer, growing it into an 180-person organization. Currently at Dentsu Consulting Inc., as a comprehensive firm specializing in growth areas for society and businesses, he provides consulting services. "Right-brain × Left-brain × Unconventional Talent" identify challenges for decision-makers grappling with growth issues, then support them by co-creating "unique and credible" strategic concepts, planning, and execution.

Sugiura: When we launched the Retail Media Promotion Department, we gathered information thinking, "We want to be like Walmart." However, we concluded that the approach to engaging with customers must be unique to us, as it varies significantly by industry and business model.

Iba: I don't think anyone has the definitive answer for retail media yet. While it's said to be growing in the U.S., current estimates from market research firms like eMarketer—still largely projections—show Amazon holds about 77% of the share, with Walmart at around 6%. So, retailers' efforts are still in the early stages. I believe each company's share will grow from here. As they experiment, including how they approach retail media, each retailer's unique retail media strategy for their own customers will also evolve.

Sugiura: Exactly. That's why I'm a bit nervous about what we're discussing here becoming an article (laughs).

Iba: I get it. You see the same speaker at an event six months later saying something completely different. I think retail media will keep changing rapidly. I myself might be saying something totally different from what I'm saying here in just a few months (laughs).

Yagi: I think that's how we move toward the goal, or the future we want to achieve.

Iba: Exactly. I think companies' perspectives on their customers are shifting rapidly right now. Should they narrow their focus or broaden it? Due to inflation, the US is in a mode of avoiding waste, so I believe they're currently leaning heavily into their most critical customers. They try things, and if it doesn't work, they pivot back. That's how I see progress happening.

Yagi: That's the beauty of retail media—it lets you test these things. Since everything from awareness to purchase happens within the retail space, you can move forward while verifying and improving: what makes customers happy, what doesn't work, what drives corporate revenue, and what doesn't. That's what retail media is all about, I realized.

(Continued in Part 3)

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