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Retail Media Breakfast Club
The Retail Media Fermi Paradox: Why Everyone Talks Growth… But Only Amazon & Walmart Win
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Today's episode is actually an essay written by my friend and industry luminary Drew Cashmore, who is the chief Strategy Officer at ad tech company Vantage. And Drew writes an excellent newsletter on LinkedIn called Retail Media Leapfrog, and his article last week was so good that I reached out to Drew and asked if I could republish it on this podcast and in the newsletter today. So if you missed his essay last week, you're really going to enjoy this one. I'll link up to the original post in the show notes, but now let's dive in. This is the Fermi Paradox by Drew Cashmore where is everybody? Asks Tim Urban in one of my favorite blog posts of all time. For those not familiar with the Fermi Paradox, it goes something like this. A conservative estimate suggests that there should be 1 billion habitable planets and 100,000 intelligent civilizations in our galaxy alone. So why haven't we seen any intelligent life? The Fermi Paradox highlights the contradiction between the probability of extraterrestrial life and the lack of evidence of its existence. It centers on something called the Great Filter and suggests that there are a few potential reasons for this. Number one, no higher civilizations exist. Intelligent life on Earth is an infinitely impossible fluke. The moon move from single to multicellular organisms, as one example, is rarely surpassed. Number two, the Great Filter is in our not so distant future. Most civilizations don't advance much beyond our point. Either we create technologies that inadvertently destroy ourselves. Good thing we're definitely not on that path. Or most civilizations see some other type of cataclysmic events, or three other logical reasons we might be too primitive to see it. Or maybe other civilizations are content with staying in one place. Now, to draw an unnecessary parallel to the much less consequential thing I spend most of my life on, I give you Retail Media's Fermi Paradox. A conservative estimate suggests that there are 95 retailers globally that carry predominantly national brands and generate over $10 billion in revenue. And if you assume an individual retailer can capture 1% of its sales in retail media investments, why don't we have more $100 million plus retail media businesses? Why don't we have more 50 million plus retail media businesses? The retail media Fermi Paradox highlights the contradiction between the value that many global retailers drive for their supplier base and the lack of share capture of those suppliers marketing investments. You've probably seen These charts from eMarketer from analysts Max Willans and Sarah Marzano showing that Amazon and Walmart will collectively capture about 90% of retail media investments in the US market moving forward up from their current dominance of 85%. Slightly less so for Europe, but but still the concentration is incredibly high. This is to say that retail media is massive, but revenues are consolidated at the top. If you drill down into individual retailers, you can often see category dominant retailers losing retail media investments to Amazon, in spite of those retailers having a disproportionate share of retail sales for their supplier base. That is not cool. Today we're going to chat about that 11% of the pie, that non Amazon and Walmart piece, why it is so small today and how we can make it bigger. And to do that we're going to first look at some of retail media's great filters today. Great filter number one the tactic trap Amazon and Walmart own 85% of the $70 billion in retail media investments in the US market. But what percentage of retail do they represent? 17%. Those two retailers, Amazon and Walmart, collectively capture about 17% of US retail consumer spending. If you zoom in a little, it tells a slightly different story though. Amazon and Walmart capture roughly 50% of all US retail consumer spending on online, guess where retail media ads predominantly show up? According to data from Andreas Reefin at Pentalap, about 64% of ad spend in retail media is coming from on site product listing ads. Another 20% is coming from on site display. That means 84% of retail media ad investments happen on retailer websites. What this means is that most retailers are attempting to win share against two players that dominate both the sales and maturity of technology in the tactical areas where these ads appear. To put it plainly, Amazon and Walmart are really good at product listing ads and have massively scaled ecosystems to support those efforts. And so this is the Great filter number one, copying the Amazon playbook and competing on their turf. Great Filter number two, the Investment Trap drew references my concept of the retail media doom loop where without revenue, retail media networks can't invest in new technology or talent. And without that technology and talent, they can't attract new revenue from brands. It is a vicious cycle that is entirely self inflicted. Did you know that leading retail media networks drive 85% of their ads through mid and long tail advertisers? Miracle Ads provides full funnel ad formats tailored to both 1P and 3P advertisers, leveraging unique AI capabilities that provide unprecedented levels of relevance and engagement. Retailers who want to capture ad spend from the long tail of 3PMarketplace sellers use miracle ads in their tech stack. Learn more@miracle.com that's M I R A K L.com Growth is decelerating too, according to eMarketer, from 26% year over year growth in 2024 to 17.9% growth in 2026, with rest of market growing at a slower percentage rate than Amazon and Walmart despite their size. The retailers who were going to win on momentum or scale alone have already won. Everyone else is now competing on merit, and merit requires investment. Which brings us to the Great Filter Number 2 Low to no investment in growth. Amazon and Walmart invested hundreds of millions, if not billions over the past 15 years. They invested in retail media independent of its growth at that time. In things like technology, people go to market change management and it clearly worked. But many retailers have never made a strategic investment in this business. Many launched retail media networks in name only with minimum viable investment or investment off a small percentage of retail media revenue. EMarketer analyst Sarah Marzano has been saying this for a while, that retailers and their retail media teams need to start thinking about playing the long game. She's argued that the retailers failing aren't failing because the opportunity isn't real. They're failing because they're treating a transformation like a bolt on revenue line. Great Filter Number three is the Commodity Trap I'm going to fast forward a little bit in Drew's essay to make sure that we make our timeline here, but this is essentially that your data and access is only differentiated if it's yours. The moment someone else can buy a media asset around you, you've lost control. At Shop Talk this year, head of Kroger Precision Marketing Christine Foster said that there's still a lot of friction in scale and and interoperability. Marketers want to reach audiences wherever they are and that's not always easy to do. And so this is Great Filter number four, fragmented, disconnected technical architecture that results in businesses that only scale by adding more people. Now, we've talked a lot about these great four great filters. I had to heavily summarize the final two, but we do not yet have time in this episode to talk about breaking past those great filters. So I do recommend checking out the full essay on Retail Media, Breakfast Club.com or Drew's original article on LinkedIn to hear what can retailers do to break past these great filters? I'll give you a quick hint. Number one is orchestrate outcomes which helps to break the tactic and fragmentation trap. Number two, own your moat Breaking the commodity trap. And that is all around first party purchase data and not just giving that away. Number three is investing in growth and investing in infrastructure and talent and number four, Chase mutual value. Which is to come back to the vision behind Walmart Connect, which is when you grow, we grow. When we grow, you grow. So having mutually assured outcomes for both the the retailer and the brand, this is an excellent essay. I think it's particularly useful because Drew came from Walmart Connect in Canada at a time when Walmart Connect was really hyperscaling in that market. And as usual, one of the best parts of these posts is actually reading through the comments from folks in the industry who have added on their own POVs or underscored some things that they found useful in the article. So as usual, it is the comment section that delivers a ton of value here. Thank you for tuning in and I'll catch you tomorrow.