Tesco's new advertising offering has plenty to entice brands but some are calling it a rebadging exercise while others warn of a potential conflict of interest.
By John Reynolds
Tesco's decision to ramp up of its advertising business has been described as a cog in its "virtuous circle", but some observers question how new the UK's biggest supermarket advertising one-stop-shop offering is, Heralded as "the UK's largest closed loop grocery and insight platform", Tesco says it's increasing the amount of advertising inventory on its platform and sharing more of its loyally data to advertisers.
The importance of Tesco's advertising business, whose reach Tesco says is on a par with Facebook and Channel 4 in the UK, was underscored by the retailer's chief executive Ken Murphy speaking at the launch last month of "Tesco Media and Insight, powered by Dunnhumby". Its launch comes amid a wave of retailers making a play for what is called the "retail media" space, as they look to follow the path blazed by Amazon, which has become an advertising powerhouse and last year scooped over $20bn in annual advertising revenues.
The response to Tesco's ramped up offering has been mixed. Some argue its mix of retailer and brand data across its online and physical estate will prove a pull for advertisers but others say Tesco'a announcement is merely formalising what it's been doing for years and is offering little new. Simon Davis, CEO, Walk-In Media, the media agency, says the success of Tesco's media offering hinges on the success of the overall Tesco business. Davis said: "I mean it's a virtuous circle for Tesco. The better the business does, the better the media offering is, the better the margins are for the products they stock and for Tesco and so it goes round."
Tesco's retail media offering
Spanning media and insights, Tesco says its sell to advertisers is: "Bringing together Tesco's extensive understanding of its customers, through Tesco Clubcard and instore insights, with Dunnhumby's leading data science expertise. "This closed loop platform will provide brands and their agencies with the right insight to drive more interactive, two-way relationships with customers, helping brands build stronger connections with their customer base and build loyalty for both suppliers and Tesco."
Its one-stop-shop advertising offering covers five media areas: onsite (display and sponsored product adverts); connected store ("a connected store experience for brands to target customers across their journey through the Tesco store network"). Partners (allowing advertisers to use first party data to target audiences on outside platforms; experience ("customer led propositions that allow greater brand creativity and positioning"; and CRM (rewards geared towards a "shopper's specific circumstances"). Across insights, it includes category development (insight solutions for brands); product innovation (supporting new product development) and media measurement (evaluating 3rd party media campaigns)
Following in Amazon's footsteps
Amazon is widely seen as a brand that has led the pack in building a powerful advertising business, which is looking to rival Google and Facebook. But a slew of other retailers are following the same path as Amazon, albeit to a much smaller scale.
At its launch, Tesco's chief customer officer Alessandra Bellini likened Tesco's proposition to "Walmart's Connect and Target's Roundel media platforms. Retail media launches, like in the US, are proving a pull for UK-based retailers, like Boots, which recently launched a similar proportion to Tesco, enticing advertisers with data from its 17 million Advantage Card loyalty members. Retail leaders are increasingly moving into this retail media space, setting up private media marketplaces and establishing separate branded division as they scale up their offerings.
Building a powerful advertising business, experts say, make sense for retailers as they cushion against the current threats they face, from changing spending habits to a global pandemic.
Obvious route for advertisers to take
For advertisers, the offering from retailers in the retail media space can be compelling. Retailers own valuable first party data on consumers including purchase behavior. In Tesco's case, its Clubcard is used in 80 per cent of transactions and by more than 20 million households in the UK, Tesco says.
Often the data carried by retailer on a particular brand is more comprehensive than than data the brand holds itself. And amid the demise of the third-party cookie, brands are crying out for improved data amid more and more shopping moving online. Shane O Leary, head of media and performance at Accenture Interactive Ireland, said: "For consumer packaged goods brands in particular, this is a big challenge since they don't own their customer and have to rely on second hand insight from the retailers they sell through. That's why so many such brands are trialling direct to consumer channels. It's also a key reason retail media has gotten a second wind. Brands like Amazon, Walmart and Boots have direct relationships and oceans of first party data from loyalty cards, app and site interactions. In most cases they own a lot more quantitative, behavioural data about a CPG brand's own customers than the brand itself."
What the experts say
Many advertising experts say Tesco's announcement about its retail media sale is, in effect, formalising a sell that had been in play for some time. Dan Pimm, co-founder, December19, the media agency, said: "Tesco has ben doing this through Dunnhumby for years. It is just formalising it, bringing it together as a seamless unit. Tesco is trying to create a one-stop-big-shop, whereas it has sold maybe Tesco magazine separately, and instore advertising and out-of- home separately, Tesco is now bringing it all together and now have one big audience. And Tesco is talking about how its data is as big as the big players in the advertising industry. But it's not really anything new."
Will it appeal to new advertisers?
Despite it offering a broad number of eyeballs, Pimm questions whether the proposition will appeal to new advertisers. He adds: "if you are a brand not associated with Tesco, like a car brand, is it the right environment to be advertising within? Because the experience is usually about people shopping for FMCG goods. Would you really need your car being advertised among that clutter or not?"
Media analyst Alex DeGroote said "this is a multi-platform offering here which I think advertisers will find attractive" pointing to its "massive reach. Amazon paved the way didn't it, in terms of the marketplace offering and so Tesco is really just following suit perhaps two or three years later."
But DeGroote also points out to a potential conflict, given Tesco's own label products could sit on the same shelf as brand advertising across Tesco. DeGroote said: "It is all about first party data. And you could argue there is a conflict of interest in terms of sharing shelf space with a Tesco own label brand, which probably is quite a lot cheaper than your own. Yes, there will be scepticism over the use of that data, particularly given that Dunnhumby does data marketing. High-end brands will be reluctant to get included in this offering." While some say Tesco Clubcard is just another source of customer date, Davis says "the level of insight that Dunnhumby can glean from Clubcard usage I think ahead of anyone else by some margin."
Tesco is a UK retail powerhouse and its retail media offering could be a key revenue stream as it fights several challenges. With formidable reach rivaling some of the big media players, observers see it as an enticing offering for product managers and media buyers. But it will be likely competing with more and more retailers for advertising pounds, as they increasingly invade this space.
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