The Rise of Retail Media Networks: Walmart's Multi-Billion Dollar Ad Play
If you think big grocery chains are just in the business of selling milk and cereal, it is time to look a little closer at their balance sheets. The biggest retailers in the world are quietly building massive advertising agencies right inside their stores and apps. By using first-party shopper data, these companies are turning your grocery run into a highly lucrative revenue stream.
What is a Retail Media Network?
A retail media network is an advertising platform created and managed by a retailer. Instead of buying ad space on television or social media, brands pay the retailer directly to promote their products to shoppers.
Think about the last time you opened a grocery store app and searched for dish soap. The very first item that popped up was likely a sponsored product from Dawn or Palmolive. That sponsored placement is retail media in action.
These networks are not limited to digital spaces. Retailers are placing ads on self-checkout screens, in-store digital displays, and even on the radio stations playing over the store speakers. Because the retailer owns the store, the website, and the app, they control all the digital real estate where ads can be shown.
Walmart Connect: A Multi-Billion Dollar Giant
Walmart is leading the charge in the physical retail space. The company launched its advertising platform, Walmart Connect, to take advantage of its massive customer base. Around 150 million customers visit a Walmart store or the Walmart website every single week. That kind of traffic is incredibly valuable to advertisers.
The financial results of Walmart Connect speak for themselves. In 2023, Walmart reported that its global advertising business generated roughly $3.4 billion in revenue. Furthermore, the US portion of that ad business has consistently seen growth rates of over 20% year after year.
Walmart allows brands to target shoppers using data from past purchases. If you frequently buy dog food using your Walmart account, Walmart can charge pet brands a premium to show you ads for dog treats the next time you log in. This highly targeted approach is incredibly effective for advertisers.
Why Brands Are Pouring Money Into Retail Ads
Consumer packaged goods companies, like Procter & Gamble or Kraft Heinz, are shifting their marketing budgets away from traditional media and pouring billions into retail media networks. There are two very specific reasons for this major shift.
First, tech companies are changing privacy rules. Apple introduced app tracking transparency, and Google has been phasing out third-party cookies on its Chrome browser. These changes make it very difficult for brands to track what consumers do across the internet. However, retailers have first-party data. When you scan your loyalty card or check out through a store app, the retailer knows exactly who you are and what you just bought.
Second, retail media offers closed-loop measurement. This is the holy grail for advertisers.
- Traditional Advertising: A brand buys a billboard ad. They hope you see it, remember it, and eventually buy their product. They can never truly prove the billboard caused the sale.
- Retail Media: A brand buys a sponsored search ad on Walmart.com. The shopper clicks the ad and buys the product right then and there. The brand knows exactly how many sales came from that specific ad.
This exact tracking guarantees a high return on investment for the brands buying the ads.
The Secret Ingredient: Massive Profit Margins
To understand why retailers love this new business model, you have to look at the profit margins of selling groceries.
Selling physical goods is expensive. Retailers have to pay for the products, transport them across the country, store them in warehouses, stock them on shelves, and pay cashiers. Because of these high overhead costs, traditional grocery margins are famously thin. Most grocery chains only make a profit margin of around 1% to 3% on the food they sell.
Advertising is a completely different story. Selling digital ad space on a website costs almost nothing to execute once the software is built. Because of this, advertising margins are incredibly high. Industry analysts estimate that retail media networks operate with profit margins between 50% and 70%.
For companies like Walmart, this means the advertising division is generating a disproportionate amount of the company’s total profit. The cash generated from these ads can then be used to keep grocery prices artificially low, which brings in more shoppers, which in turn attracts more advertisers. It is a highly effective, continuous cycle.
Beyond Walmart: The Broader Market
While Walmart is making headlines, they are not the only company cashing in on shopper data.
Amazon is the undisputed pioneer of the retail media model. Their advertising business generates over $40 billion a year. When you search for anything on Amazon, the top row of results is almost entirely composed of sponsored products.
Traditional grocery stores are right behind them. Kroger operates a highly successful platform called Kroger Precision Marketing. Target has its own fast-growing advertising business named Roundel. Even delivery companies like Instacart rely heavily on advertising fees paid by brands to boost their profitability.
As long as consumers continue to shop online and use digital loyalty programs in stores, these retail media networks will only continue to grow in power and profitability.
Frequently Asked Questions
What exactly is a retail media network? It is an advertising business run by a retailer. The retailer allows brands to buy ad space on their website, in their mobile app, or on digital screens inside their physical stores.
How does Walmart use my data for ads? When you buy items online or use a payment card linked to your Walmart account in the store, Walmart logs your purchase history. They use this data to show you ads for products you are highly likely to buy.
Why are advertising margins so high for retailers? Unlike selling physical goods, digital advertising does not require manufacturing, shipping, or physical storage. Once the digital platform is built, placing an ad on a website costs the retailer almost nothing, resulting in pure profit.
Will these ads make my groceries more expensive? Actually, the opposite is often true. Because retailers make so much profit from selling advertising, they can afford to keep the prices of their physical groceries lower to ensure shoppers keep coming back to the store.