Retail Media’s Untapped Value with Andrew Lipsman, Plus DoorDash Bets on Instacart & Amazon Disappoints

0:07Steve Dennis: Welcome to the Markle Retail Podcast, Episode 318, Election Day in America, Episode. I'm Michael LeBlanc. And I'm Steve Dennis. On this episode, our guest is Andrew Lipsman, media, ads, and commerce. With a rich career as an analyst with organizations including eMarketer, he left it all behind to focus on the emerging idea of retail media networks. It's not his first time on the show. I was just trying to figure out what this retail media networks was years ago, and he was instrumental in helping me get across the finish line. Now everybody seems to kind of have a grip on it, kind of, sort of.

0:42Steve Dennis: Andrew offers a clear-eyed take on his own perspectives on the opportunities, the misses, the propagandas, the wins, the fails, and ripped from the headlines, lends his RMN lens on the big merger between DoorDash and Instacart, something we're going to be getting into later as part of the news, as well as decrypting Amazon and Starbucks' latest results, then, of course, our popular What's On Our Radar screen. Steve, here from Canada, we can only watch in shock and awe at all the shenanigans happening for the midterms. How are you feeling today about the republic, the state of the grand experiment that is American democracy?

1:16Well, this is awkward timing because, of course, some number of people will have listened to this episode before the midterm elections here are settled, and others will have listened to it after we know what's going on, but also in between the time we report this.

1:34Steve Dennis: Or are listening to a jury on the way to the polls or waiting to vote. Perhaps. So many possible scenarios. Things are changing so quickly that who knows what other things will be in the news related to the elections. For example, some folks may know that President Trump canceled a bunch of rallies but then decided he wanted to do these rallies. So who knows what will transpire between the time we record this and the time it goes live and the time it goes live and people listen to it. So, yeah, I think, as I said a couple weeks back, I think just general craziness will ensue one way or another.

2:13Steve Dennis: Let's get into the news. For those of you who are headed to the polls, standing in the polls, or have listened, let's get into the news And let's talk about Amazon's results first. What did you make of them? Well, I'll tell you what Wall Street made of them, which was they were quite disappointed for a few reasons. Actually, objectively, most people would be quite happy with these results because overall revenue was up 12%. Profitability increased quite a lot. Great margin across the board, of course. A lot of that margin being driven by AWS, which had its fastest growth in nearly five years, up 39%.

2:53Ads also continue to rock on, though their growth slowed. But the two things that seemed to get folks' attention, one was that retail growth, in particular North American retail, grew at only 6 % overall. And online, so this is the first party part of e-commerce for Amazon, grew just 2%. Now, the caveat here is that the prime event moved, and they claim that the move cost them about four percentage points. So I guess we'll see how that all sorts out over the longer term.

3:35Steve Dennis: Quick question about that. Is that cost of 4 % in this quarter, and they'll make it up in the last quarter? Or was it not, oops, we moved it on a cost of 20? Well, that's what they are suggesting is they will make it up in this current quarter. But we shall see. Third party was up 9%. And at this point, third party is about 60%, I believe, of, well, we don't know the exact number, but about 60 % of all of the e-commerce business. And Whole Foods Market, which listeners following this closely will know that Whole Foods Market, which had been not exactly on fire, started to put up some really pretty good numbers the last several quarters.

4:16Well, this quarter, up only 2%, and that includes a few store openings. Now, people speculate or just generally believe that Prime Days don't have much to do with Whole Foods Market because it's really an Amazon-centric event. So a lot of people are a little bit confused by this. They also guided that retail would be a bit slower. But I think the thing, really, when you step back that was really, I don't know, head-scratcher, was how much money they are plowing into support of the AWS business and AI, which actually turned their cash flow strongly negative. And by negative, to the tune of$42 billion for the last 12 months.

5:01I was watching CNBC this morning and they had a chart of Amazon's overall cash flow for I think the last couple of years so it had like eight quarters on it and cash flow has bounced around a bit but it's been positive for a while and all of a sudden you just have this huge drop so I think as much as I said AWS is growing at a really extraordinary rate and obviously AI is very important to just about any company the size of that investment was really a cause for concern. And that also comes, not to get too in the weeds on this, but also came against a backdrop of, we had quite a few tech earnings last week, like Meta and Alphabet, and they too were putting up some...

5:45Alphabet got a big airtight, right? Yeah, and some really big capital numbers. So I think some people are like, how is this, not everybody can end up getting a great ROI with this level of spending. So yeah, the build-out of AI is costing them a lot. Just one other little tidbit that they mentioned, or I guess two others, is as we keep coming back to, their grocery and everyday essentials business is still doing quite well. They said that, and always a little bit of a classification question here is exactly what counts as grocery and everyday essentials, but they said that it is now about half of all the units they sell and is growing at three times the rate of the other half.

6:32Again, they don't quite give us enough numbers to exactly calculate this. And also, as we've talked about, the so-called Amazon Now, I shouldn't say so-called, it is called Amazon Now, which is their ultra-fast delivery, grew 10x, still a relatively small base, but a lot of good a lot of good metrics there.

6:51Steve Dennis: You know, I've been flummoxed or shocked or whatever about all the billions, billions, billions going into AI. I'm like, where is that all going? And I had a, I've done some work for, in the distribution channel, tech distribution channel with some clients and keynotes and some friends of mine, great friends of mine at a company called Blue Star, which is based in North Carolina, got purchased by a company called TD Cynics. And I never heard of TD Cynics. I kind of So I did my research on it. I was just kind of curious. They're about$110 billion distribution. And I went into their numbers. And the growth is in two huge, like they do things like to retail, small midsize retail, a lot.

7:34Steve Dennis: But two huge growth areas. No surprise, their biggest growth area is putting all the racks and all the hardware and all the fans into these data centers. And the numbers are just mind-boggling. You know what their other big growth area is? And this space. They have a whole space division. The final frontier. Like the outer space. Shout out to Walter. Shout out to Chekhov and to Captain Picard who left us last week. But, man, like the numbers just are. I had to figure out it's going somewhere, but I couldn't find it. Now I kind of, I just found it, right? It's crazy. Well, there was also some revised GDP numbers last week.

8:17And again, it's this idea that so much of the U.S. economy is a bet on AI because a lot of the growth in GDP, I think something like 50 % of the growth in GDP could somehow or other be tied back to AI investment. So fortunately, I guess in one way of looking at it, that's really keeping the economy humming if we didn't have quite the size of this, the magnitude of this. We might be talking more about recession, but if this keeps up.

8:47Steve Dennis: I want to get your thoughts on, and we're not going to talk about it in any detail, Microsoft put out an announcement connected to results about their offering. What is it like 50 % of their employees a buyout because they think their jobs would be... Yeah, 60 ,000 employees, yeah. Wow. AI, right? Are we starting to see this idea that AI will absolutely impact labor, even in companies like Microsoft? I don't think everybody's going to take it. It's a volunteer. It's not like laying off 60 ,000 people. But it's super interesting. I don't know where those people would think they would go. Maybe they're going to go frame houses or something.

9:19Steve Dennis: I'm not sure they could go do what they were doing before. Let's talk about Starbucks. But before we talk about Starbucks, I have some stats for you and the people. So I happen to be, with one of my other podcasts, an official media sponsor of a coffee, Canadian Coffee Association. So I know a little bit about coffee. Here's some stats for you. Just lay some context down for what we're going to talk about Starbucks. Past day consumption by Americans. What percent do you think of Americans have had a coffee yesterday? 66 % daily consumption is at a 20-year high. So let's keep that in context. It's flat, but consumption is at a 20-year high.

9:57Steve Dennis: That means about 195 million Americans drink coffee each week. Cold coffee was 21 % of coffee drunk in the summer, 71 % for high. And whenever you talk about coffee, and this applies to Starbucks as well, because you've got to dig through it, there's in-home consumption and out-of-home consumption. So you've really got to understand them both. What percent do you think drink coffee in home on a regular basis? What percent of Americans? Well, I was going to guess like 75%. Close. 83 % out at home has reached a record 38%, the highest is 2020. And by the way, coffee prices are up dramatically early in the year.

10:39Steve Dennis: They were up at 20 % at the beginning of the year. Now that's calmed down, and it looks like they'll be up like 8 % to 10 % year over year. By the way, 71 % of Canadians were more caffeinated here, drink, and 45 % of traditional coffees, 29 % had espresso-based drinks, again, for context for Starbucks. So what did Starbucks have to say about their results, and do we still call it a turnaround, or is it just operating now as a business? How do you think of that? Well, I think the turnaround is still kind of mid-flight, but perhaps showing some traction. One thing just before I get to some of the numbers, they're comparing against a very weak quarter last year, so that's something to keep in mind.

11:20But their same store sales in the U.S. anyway were up 7.7%, and that was driven mostly by spend per visit. Now, to your point, how much of that is just pure inflation in the items or are people trading up or buying more items when they're there? But visits were up 2.4%, which is, for a sizable company, a pretty good number. Profitability improved a lot. Their margin is now up to over 12%. So that's very healthy margin. International continues to be weak, flat-ish, essentially, and visits were down. But they've also been closing stores. And so there's some transfer between those local, like for example, here in Dallas, they closed two stores on kind of either side of one of their store.

12:08So I imagine some of that traffic was transferred, so that would drive the comps up a little bit. But in any event, it's certainly moving in the right direction. I think it is a little bit hard to really do an apples-to-apples comparison because of the easy comp and because of all the store closings. But they're also suggesting that things are going to slow down for them. And I don't know how much of these warnings or suggestions are slowdown is kind of sandbagging the numbers or whether it really just speaks to a pretty uncertain economy going forward.

12:44Steve Dennis: I mean, if you and I were having this discussion when we first launched the podcast, we'd be talking about some pretty great optimism about their international growth, particularly in China. The bloom is off that rose, right? Luckin has taken all that growth away, and it's hard to see them grow in that country at all now. I mean, maybe they turn their minds to some other place international. I'm not surprised to hear those international numbers. Let's talk about the big deal of the week. It was rumored for a while, Instacart and DoorDash. DoorDash buying Instacart for$17 billion with a B. So there's a bunch of different dimensions to this because as we get into with Andrew, there's much a retail media network as they are a delivery service.

13:27Steve Dennis: But what say you? What do you think of this? Well, one thing to keep in mind, which I did not focus on when I first was reading this and when we were talking to Andrew was this deal is not expected to close until late 2027 or even early 2028. And I'm not really sure why that would be. I mean, it's not uncommon for deals to take four or five, six months, but that is quite a long time. Now, I do think some of it must be the regulatory review. New York City in particular has already said they want to review it. So maybe that's the reason. So I need to dig into that a little bit more. But here we are.

14:07We've got DoorDash, which is primarily in the restaurant delivery business, Instacart, which is more retail supermarket delivery. So putting these two together does create a behemoth of home delivery and perhaps a bit of an antidote to Amazon and Walmart, as we've talked about a bunch of times, these delivery wars, the race to the doorstep is very difficult for folks that aren't Walmart and Amazon with their logistics capability to be able to do rapid delivery. I still keep coming back to this is an expensive way to do it or it makes it difficult to do it at a large scale because it's very dependent upon gig workers running into a store and grabbing stuff, which is a tough business to scale.

14:56It'll provide more of a powerful alternative to Amazon and Walmart and a few others that are doing their own deliveries. DoorDash did say that they intend to keep the Instacart brand and its app and all technology distinct, but it does bring 50 ,000 more stores into the mix. DoorDash has got about 100 ,000. One of the things to watch, getting back to my point about the scale of this and perhaps wanting to control your destiny, is which large retailers will still want to do their own delivery and make this more supplemental or maybe stand up something different. So I think that's mostly a story for the large grocers, the Kroger's, the Albertsons.

15:41Target's a little bit different animal because they have shipped and do some of their own delivery as well. So it's a big deal. And as you say, there is the customer delivery part of this, And then there is the advertising part of this as well. Though it's worth mentioning as much as advertising is an important part of the model here. When we talk about retail media networks, as we'll get to with Andrew in just a few minutes, Amazon and Walmart are way, way, way bigger even than the combined entities. So this is not going to completely shake the world of retail media.

16:18Steve Dennis: Anyway, let's talk about someone who has a fundamental understanding of retail media networks. Andrew Lipsman joins us now. And as we said, the deal was announced literally while we were recording the interview. So we got some of his early thoughts on it. Let's get to that right now. Andrew, welcome back to the Remarkable Retail Podcast. How are you? I'm doing great. Good to be back. Well, it's great to have you. We couldn't have thought about, Steve and I were just talking off mic, couldn't have thought about a better guest for a better time. Sometimes you get lucky in these things. We've got lots to talk about, notwithstanding just simply trying to get our arms around this whole retail media thing that you've made your life's work.

16:57Steve Dennis: Where are we finding you today? I am at home, just outside of Chicago, Oak Park, Illinois. Very good. Steve was just in Chicago. One of my kids lives in Oak Park. Come on. Oh, yeah. That's right. And she knows nothing about retail, so it's one of her best qualities, perhaps. But anyway, I digress. Beautiful part of the world. Let's talk about you. We know you. We've known you for a bunch of years, but perhaps not every single person knows who you are that's listening. So who are you and what do you do for a living? I am an independent analyst and consultant focusing primarily on retail media, but my company is called Media Ads and Commerce because I veer in all three of those directions.

17:42I was previously a principal analyst at eMarketer. I was covering retail and e-commerce, but because I had a digital media and advertising background, as Amazon started to build this mega ad business that almost nobody was aware of, I kind of connected the dots and realized that this is going to be a big thing, not just for Amazon, but for other retailers as well. This was back circa 2018, 2019. So that's when I started covering the space. And it just became bigger and bigger every year that I was at eMarketer. and by the end of 2023, I decided to go independent.

18:18Steve Dennis: Well, you made a great bet right for the time. And I remember the early days, I was just trying to get my head around what we were all talking about. How is this not like shopper marketing or how is this not co-op spending? And we've come so far pretty fast. Now, let's dive right in. When I think about Retail Media Network's top of mind for me is the kind of Amazon and Walmart. But as I think about it in my simplistic way, I feel like Amazon would make more of its money from charging vendors or third-party players to get their listings promoted and be a player. Whereas Walmart is more about working like an agency to get relevance and branding with the big brands and the CPG.

19:03Steve Dennis: Have I got that directionally correct? Tell us about the nuance or maybe not so nuance about how you think about those two things. If you're comparing them to each other, I'd say that's their relative strengths. But actually, Walmart has emulated Amazon's model, which starts by building the retail media business from the e-commerce side out. Walmart isn't even into in-store media yet. And that's going to be a huge market for them eventually. And they are technically, but in a very limited way. But really, what's been driving Walmart's incredible growth, they're over$6 billion. now in this business has been the expansion of their marketplace.

19:44So Amazon has this huge marketplace, but Walmart, last I checked, it was over 300 ,000. It's probably more than that now. So they have a big, vibrant marketplace. And what you end up getting is a lot of new sellers, new brands. All of them hope that they sell well enough that they might get on Walmart shelves one day. So there's certainly a carrot. But it also drives that auction density and competition for ad slots. And that really becomes a monetization driver. And then all of this really just fuels the flywheel for the whole business. So I think Walmart kind of smartly saw what Amazon built.

20:22They built their own version of it, but followed a lot of the things that Amazon did well. And it's working. And they're growing on a pretty big number now, consistently, like 30 % or more year over year. So it's humming. And they got a lot of opportunity in front of them, especially as they get into TV. And then, as I said, eventually in-store media.

20:42Steve Dennis: Yeah, we want to delve into that a bit later. So you see, I love that term, auction density. That's a real industry term. Now, as the numbers that you yourself kind of predict, you do see Amazon's relative share of this stuff dropping. What is it, from 79 % to 61 % by 2035? Is this just, again, it's all going to go to Walmart? Or are there, you know, we've had on the mic folks from Home Depot, for example, lots of people, you know, the grocers, the big grocers, Kroger, Loblaw here in Canada, they're getting share and they're in the game as well. Is this a lot of people going to take bites of that apple, so to speak, or is it really a fight between these two behemoths?

21:21Short answer is yes, there are a lot of bites to be taken. It's, you know, a common refrain that Amazon and Walmart together, about 85 % of the market. And the implication that everyone says is everyone else is just fighting over scraps. Well, that 15 % of scraps is already$10 billion. And this is a market that's going to, according to forecasts, is going to double by 2030. So there's a lot of opportunity out there. Amazon, even as it loses share, according to my projections, it's still going to keep growing at a pretty strong rate. It's just that I think that the other players are going to start to get the wind beneath them and start to grow.

22:01And Walmart's really the first one that's built it in that really significant way. But let's not underestimate the fact that there are already several billion-dollar ad businesses out there. Instacart, DoorDash, Uber, Best Buy is right there. A couple others we don't know but are probably within sniffing distance. you know the other big retailers Kroger, Target, etc. So this is already a vibrant ecosystem it's already making a difference in a lot of these retailers bottom lines and there's a lot more they are going to continue to figure it out. One stat that I like to use is did an analysis with a company out of Australia that does media valuation and basically looks at all the owned media that you have as a company to show what the potential is for monetization.

22:55And right now, collectively, retail media has only monetized about 38 % of the total opportunity. So it's funny we talk so much about saturation of the opportunity. I think that comes from the fact that Amazon and Walmart are carrying a lot of ads on their site. We're not even close. We are not even close to saturation. So there's a ton of opportunity for everyone else. And I would say, you know, a lot of them aren't really, aren't humming yet. They're not doing even close to what they could be doing. They're not even taking the easy money that's still out there.

23:29Steve Dennis: We'll be back with Andrew Lipsman from Media, Ads, and Commerce right after this message. If the world has changed so very, very much, why have so many organizations changed so little? As the pace of disruption accelerates, leaders need the courage and the insight to aim higher in the value they deliver, move faster than they ever have before, and take the bold action to leap ahead of the competition. With Leaders Leap, transforming your company at the speed of disruption, Steve's latest breakthrough bestseller, you'll discover why so many companies fall into the trap of the timid transformation.

24:03Steve Dennis: More than anything, you'll learn about the essential mind leaps leaders need to make to win the future. Leaders Leap is available just about everywhere books are sold, as well as on Audible and as an e-book on Kindle for just$9.99. I've been following your work for a while and gotten to see you present a couple of times on retail media. And of course, one of the big conversations around what is really incremental and where should the money come from or how should retailers be thinking differently about their marketing spending. And I know I've seen some statistics that perhaps some folks aren't super confident that their spending is incremental.

24:43Just give us the, I know that's a big open question, but what's sort of your story around how to think about incrementality and how to fund these efforts? So first off, there's a big disconnect that comes up that misses a huge part of where the money does come from. And it comes from the fact that brands will say, I'm tapped out. I don't have any more money to spend. And now you're asking for my brand marketing dollars. I've already tapped out what I've pulled from shopper and trade. And what I say to the brands is it's not all about you. You're competing with a lot of third-party sellers and disruptor brands.

25:20And so that's actually what's fueling big growth in the market. Amazon and Walmart, those are built on third-party marketplaces. And it's not the biggest brands who are driving most of that revenue. So when I look at where the growth comes from, the biggest chunk of it is incremental revenue from these mid and long tail sellers, you know, going from being an advertiser to an advertiser. Now, within the existing brands, one, they do get incremental dollars. The early money, you know, was that kind of flood of e-commerce dollars that did come out of shopper and trade during the pandemic. As that has kind of dried up, now they have to figure out where do those next tranches of dollars come from.

25:58As retail media moves up the funnel into off-site programmatic, social, and streaming TV, increasingly those are coming out of brand marketing budgets. But a TV ad is a TV ad, right? The retail media version is underpinned with different data and closed loop attribution, but it's still a TV ad. So it makes sense that brand marketing dollars would shift from one to the other. I think that nobody really talks about where it should come from. And their biggest budgets in many cases are meta, Google, and offsite programmatic. And those are three massive pools of spending that have incredible amounts of waste, misallocated, overinvestment.

26:43So I'd say start looking there. You could start splintering off some of that spend. I'd start with programmatic because, frankly, so much of that is fraudulent inventory at this point. I mean, they're really flushing dollars down the toilet. But Meta and Google are heavily overinvested, and they need to get smarter about how they're using those dollars. No, I mean, there's a lot there. I was just in a conversation, actually, with a retailer who did exactly what, not because they were necessarily going into retail media, but just looking at some of their programmatic spending. And they did an analysis of it, and they realized that there was quite a lot that was basically lighting a bunch of cash on fire.

27:20But anyway, let's also talk about the margin side. One of my favorite things, because I go out to Amazon every once in a while, and I'm always a little bit cheeky asking them questions about why do they have so much sponsored advertising and how do they get the customer experience and the trade-offs between merchandise margin versus retail margin. But anyway, sort of famously, retail media can be very, very profitable for the retailers if they really go after it. But where are you currently on thinking about getting the balance between the customer experience balanced with, this is a loaded question, I'm sort of junking up the page potentially with too much sponsored advertising?

28:06Absolutely. I think CX is paramount for anything in retail media. But there is an assumption that ads and CX have to be in tension with one another. They don't. Now, we in the broader digital advertising industry are quite good at mucking up a lot of spaces with terrible ads. So, right. So, like, I say this going full well that in-shittification is a very real threat. And you heard me talk about the importance of CX in the physical store as we start to introduce ad experiences. One of the things I've said is don't be shouting promotions at people all the time. You know, do good quality brand advertising.

28:48The digital ads actually elevate the experience so they can and they should. I just came across some research or did some research on third party data that showed brand advertising, stuff without price and promo information actually drives sales better for both the product skew and the brand. Like that's amazing to me that right when you actually give the better quality experience and ends up moving the needle on sales too, not to mention that it's building that brand equity. So on site, there's always concerns about how many slots are going to advertising. And for me, the key is search ad relevance.

29:26If you have really high search ad relevance, then the customer doesn't really even see or notice a difference between a paid result and an organic result. It feels organic. And so that's actually why Amazon has, I'll say, gotten away with such a high ad load. And now Walmart's right up there too. It's because they have excellent search ad relevance. I'm about to release some research with a partner in the next couple of weeks that looks into on-site CX. And I'll just, without giving too much detail away, I'll allude to the fact that consumers don't really see a problem with the ad experiences on these sites.

30:02So we tend to... I must be the only one. Listen, there are people in this industry who are very attuned to it. And you do, listen, I run into instances where I will get a bad search result, but those are edge cases for the most part. And so it's just not really getting in the way of most people's experience. Now, other retailers still don't have great search ad relevance. So if they want to increase their ad load, and they should be aspiring to do that, they need to start with making sure that the on-site CX is great with great ad relevance. Sure. Well, let's, you know, you allude to this a little bit, but where are we with physical stores as kind of the next frontier?

30:43You know, of course, a lot of people have been thinking about physical stores as just media anyway, right? Because they're part of the marketing for the brand. And obviously, there's been supermarkets and whatever the end cap average. There's lots of stuff that has gone on, Super Bowl promotions, whatever it might be. So it's not like there hasn't been advertising in stores. But where does this stand? What do you think's working? Or where are there opportunities that maybe some of the retailers listening might benefit from thinking about it or experimenting with them? Yeah. Well, so there's the same fundamental tension that exists in these organizations between ads and CX.

31:20So on the digital side, it's ads versus they're going to battle with the e-com teams who they want to drive sales. In the store, it's the merchants. And we know that merchants rule the roost. And they don't want anything that's going to get in the way of driving sales in store. Now, the ads team and the merchants have the same goal at the end of the day. It's to increase receipts. That's how you get more investment. So what we're seeing, there's a lot of hesitancy in the U.S. and it took a while to kind of get out of the gates. We've finally seen that happen and materialize in a significant way, but it's still pretty early in the rollouts.

32:00Now, I say in a significant way because we do have national retailers who are going full throttle on this and they're moving forward pretty quickly now. CVS, That's Kroger, Albertsons kind of leading the pack, and everybody else is starting to dip their toe into the pool a bit more. The experiences that I'm seeing in-store are pretty good. And I'd say, at worst, there's something that you can ignore, but nothing that I would say is detracting from the experience whatsoever. Now, I did some research with Grocery TV not too long ago about in-store CX and how consumers are responding from the potential transition from a static display to a digital display.

32:44And they got to do side-by-side views of images of both. And what was interesting is there were a lot of – they were asked, like, does this hurt CX? Are you neutral to it? Or does it improve the CX? And, you know, it's overwhelmingly positive now across almost every display. It's improved. We did the same study three years ago, and it's improved by about 10 percentage points for the displays that we researched both rounds. And there's a lot of displays that I call no-brainers at this point. And it's the places where you have high dwell time. So that is checkout, the deli counter, and pharmacy.

33:27um any sort of mobile advertising um people are fine with and then front of store whether that's store exterior or at the store entrance and again what do these all have in common you're not really interfering with the merchandising um or consumers really want that content or entertainment where it starts to get a little bit uh i don't want to say dicier but you know there's more to navigate is when you start to go into some of the power positions in the store like the end cap I think it's super high value. Credit to CVS who is doing that. We've seen Tesco and others in the UK prove that it works and it doesn't have to be problematic at all.

34:05But I understand that it's going to be a much more political battle to do the end cap. So that's something I would say, you know, sequence your, how you move into the store, you'll get there eventually. Right now, go with the no brainers. Yeah, it's great advice.

34:20Steve Dennis: Now, we're almost, what, 15, 20 minutes in and AI, agentic AI has entered the chat. Let's talk about, I loved your search ad relevance content. Now, if we have these ad agents or these agentic agents going in and doing shopping for people, does that start to impact this whole idea of this ad relevance and this revenue where agents are just coming in? They don't see any of this stuff. They're just doing the shopping on behalf of people. We know Walmart just opened up their store to that. Is that net decretive? Is that a word, decretive? Decretive. Decretive. Does it take away from Walmart? It's decorative, no.

35:02Steve Dennis: I think I'm English. We're making up words here. Well, English being a living language, and I know, Andrew, you're great at tech. Anyway, at the end of the day, what's your perspective around agentic AI and how it impacts on retail media, these things? It's not a threat at all. If anything, it's going to be incremental and benefit overall e-commerce shopping. the agentic commerce like the actual transacting where you you know let your agent go through the whole shopping and buying process for you it's never going to be anything but the most marginal behavior we just we don't understand how consumers behave and why they behave the way they do and so we just let the tech the fact that technology exists to do something we assume that that's enough to you know compel everybody to move in this direction it just doesn't happen that way I've seen too many of these technology trends come and go where we assume it's the future.

35:56And then, you know, where the rubber hits the road is what matters. So for me, show me some data of people transacting in a significant way. Show it to me. What all you hear are these these brag numbers that are designed to to feed the hype. And, you know, it's like don't say a big percentage. I know it's going to be a big percentage because, you know, anything off of an infinitesimally small base is going to be a big percentage. Like, why don't you show me what the number is based off of? You won't see that. You're not going to see it because it's not going to happen. So, but the whole idea of, like, traffic, like, I'm going to have an agent shopping for me and that this is going to become the future of web traffic.

36:37We have search today. Tell me how this is functionally similar or different than search. Like, well, you need to say, oh, these crawlers that are happening. I mean, you have to filter that out right now if Google is crawling your site. So, yes, you need to identify what is essentially a crawling experience. But it just doesn't change the fundamentals. And all of this talk that you're going to have to start figuring out how you market to bots, it's just, to me, completely insane. What do you really think, Andrew, though? Don't be shy.

37:14Steve Dennis: You know, let's change the lens and go in a different direction. Let's talk about loyalty. We're preparing the notes for our conversation and what winds up in my mailbox. But the Costco membership catalog, OG, if we can call that retail media. Now, if we think about Costco membership as loyalty, you know, Amazon, Walmart, they have tremendous modes in general around loyalty. Does that create that ultimate moat around their retail media as well? And is that the real moat for your line of work? I'm not sure I'd call it, well, maybe it is a moat. I've always thought of it as the foundation. Now, I'd say that the best retail media networks build a flywheel based on the interplay of media experiences, advertising, and commerce.

38:03and the fulcrum on which that flywheel spins is your loyalty program, right? Prime membership was the fulcrum for that. It's the source of your first party data. It's what enables closed loop targeting and attribution. It's really the source of power for your flywheel. And so it's essential. And so, yes, anybody who does not have a strong loyalty program is definitely competing at a disadvantage, but the strongest ones. And really, I mean, think about Walmart. Walmart Plus was launched, I think, in 2020. That became really foundational to everything that they've built. Had they not built that, right, I don't think their ad business would have grown the way that it has.

38:51Steve Dennis: Yeah, the whole idea of loyalty was an anthema to an earlier generation of Walmart. They just saw it as an added cost to them and the consumer, right? But I think we're in a very, very different era. Yeah, and for them, I mean, there was a point where they had, what, like half of their transactions were untraceable tender. So they were missing all that data. You know, I think they still have a decent chunk of it, but I've heard that the numbers maybe, you know, they're now seeing something like 70 % or 80 % of transactions. So, you know, that's a big difference than 50%. As we think about other retailers, you know, if you're a, say, more small, medium-sized retailer, what's the case or what situation do you have to have to really think that retail media, whether it's the online piece or the in-store piece or both, really makes sense for you?

39:40Like, what would you say? I mean, is having enough data, for example, if you're a type of retailer that does not have a high percentage of traceable transactions or household data, can it be something? I think the further you get down the list, actually, the less valuable data is because the data fuels a lot of the off-site targeting business. And honestly, the mid and long tail aren't going to be big players in that in most cases. So once you get out of, let's say, the top 20 or so retailers, those opportunities are a lot more limited. The first thing is, do you have traffic on your site? That's the easiest to monetize.

40:16if you have a significant amount of traffic, that's a few hundred million dollar business for a lot of retailers right there. Certainly if they're monetizing to the extent that they can. Once you start to talk about, let's say, regional grocers or players like that, or maybe regional retailers, the opportunity really, I think, comes from being aggregated into a much larger network. Now, let me say, there's been this thought that anyone who's in retail media is like, oh, we're launching another walled garden. We need to get that out of our mind. Not everyone has to be a walled garden. Think of most of them as the rise of digital publishers.

40:57And you can be a digital publisher, you know, back in the day with 5 or 10 million people visiting your site every month. You're not a mega business, but you're also not nothing. It's a viable business. But how did those ads ultimately get delivered programmatically? It was through aggregation of ad networks. And so when I think about the right now, if every regional grocer is fighting for those retail media dollars, those are hard dollars to win. And they're competing with the big boys. And it's much easier for a brand to just invest with the top five, seven, eight CPG retailers than going to all the regionals.

41:32If you aggregate all the regionals, right now, that's easy to invest in. If I'm a brat, there's incredible scale. So that's actually a grow the market opportunity. So you should be trying to grow the market. If you're those players and aggregation is the path to doing that. And then your slice of it, even if it's a modest slice of a pretty big pie, that becomes pretty meaningful to your business. And, you know, for a lot of those, if they build a$30 million business of incremental revenue that comes at a much higher margin, that can be really meaningful. Yeah, yeah, that makes sense. I actually meant to ask you earlier, because when we were presenting at the same conference, I remember one of the things you talked about was just kind of the state of measurement and why I think you were dunking on ROAS pretty hard.

42:19But I'm just curious, not necessarily specific to retail media, but just as marketers think about the degree of sophistication or better clarity around their measurements. Have we made any real progress on that? Is there anything new emerging in terms of the way marketers should be thinking about their performance? There is progress. We're seeing some better forms of incrementality measurement emerge, and the smart money is starting to gravitate in those directions. So I would say there's a future that smart brands can buy into. It's not happening nearly enough. And really, the whole industry is just chasing ROAS.

42:57And for a lot of reasons, I could do a whole other episode on that. It really leads a lot of brands in the wrong direction. When I say Meta and Google are overinvested, it's because people are chasing ROAS there. And they're ROAS machines. They're designed to be able to put ads in front of you so they can take credit for it. And the ROAS numbers look great. It's not incremental sales a lot of the time. So stop chasing ROAS. There is opportunity there. R &M's can get a lot better, especially as they try to get those brand dollars, by speaking a different measurement language. They're forcing everything into performance marketing, and everything gets measured in terms of ROAS.

43:38That's a 28-day attribution window. It's not good for a lot of different reasons, but it's actually ignoring the way that brand advertising has traditionally been understood, which is that you just have to get reach. You have to be in front of people frequently, right? It's a scale thing. You've got to reach the right audiences. And then there's brand equity that's built over time and it manifests as sales over time. That doesn't get accounted for in a 28-day attribution window. So I was at a conference and a lot of RMs were complaining about why can't we get brand in-store media? And I go, what data are you putting in front of that?

44:13And they were all sales and performance metrics. And I go, I get that that's the game that you're expected to play and it's derived from the shopper trade world where that's the currency. But if you want those brand marketing dollars to enter the store, you need to give them the data. And they're used to buying large media buys with audience data. And they need to understand reach and frequency. So if you don't put that in front of them, don't expect them to invest like that. Yeah. Mary Meeker, I think, used to put that where the eyeballs are versus where the marketing dollars are and show that lag.

44:49Anyway, for all the old school people that remember. Yes. Well, the disparity right now is showing that mobile, right? Mobile had a huge percentage of time spent and the ads hadn't caught up yet. Now mobile is the most over-invested because of Google and Meta. But I did that exercise for a game store. I said, what if you treat shopping, physical shopping as a media channel? It would equate to about 5 % of media time spent. But in terms of advertising dollars, I'm not talking about shopper and trade spend. Advertising dollars, so it's a digital, ads 0.1%. That's quite a gap. A little bit of a gap.

45:29All right, lightning round as we're coming up on our time. If you had to say to people, thinking across, say, the next 12 to 24 months, where should their attention perhaps be dialed up? And where might there be enough hype where you're just like, you know, just stop paying attention to that or put that on the back burner in terms of their thinking and focus? Yeah. Easiest question. I mean, too much time, attention, worry, concern has been given to agentic commerce. It's not a threat. Pay attention and be informed and watch the consumer behavior. Everybody is freaking out about what could possibly happen rather than watching the consumer.

46:09When the consumer starts to show you that they're meaningfully changing their behavior, then adapt to that. In the meantime, they're not doing the basics in building their retail media networks. The biggest opportunity is far and away on-site media. It's heavily under-monetized for almost everybody that's not Amazon and Walmart. And you can do it with a strong CX as part of that. I don't know why there's so much easy money for the taking. I don't know why they're running around with their hair on fire about these things that probably aren't ever going to materialize. And in the meantime, like there's gold in their own backyard.

46:48Get your pickaxe and shovel and go get it. And call Andrew.

46:53Steve Dennis: And call Andrew. And Andrew, I got one for you. Ripped from the headlines. Last week, a mega deal,$17 billion. DoorDash buys Instacart. I can't imagine these two organizations wildly economically viable without retail media. I mean, they're just retail media powerhouses. Do you agree? And what's your early assessment of this deal? Does it create a big new player? What do you think? Yeah, well, I mean, listen, they're two of the few billion dollar retail media businesses today. 30 % of the revenue for Instacart comes from ads. They've always been their valuation is tied to advertising more than anything else.

47:32um so you know i i did an assessment of i called it a rmn scalability analysis to see what the potential is because everyone was saying so many rmns have potential to scale into a meaningful business i didn't have a trouble finding at least 30 u.s rmns that could scale to 500 million in revenue or more but in those rankings um numbers four and five were doordash and instacart So put those two together and you have a potential for a real juggernaut. Now, this comes with all the qualifications that when you have mergers of major existing companies and there's always this desire to create efficiencies, integrations can always be a little bit messy.

48:17And you hope it doesn't set the businesses back. I hope that they basically keep running the businesses in parallel and kind of do the right integrations over time. Instacart's a great brand. And I hope that brand isn't lost. And it's very, very tied to grocery in the mind of the consumer.

48:34Steve Dennis: RIP to the shopping cart, by the way. Instacart bails on that before the merger. Yeah, well, listen, it was capital intensive and it was hard for consumers. I always thought that was a great long term play, like a 10 year play. I'd want an ad on my shopping cart. If I was a brand, that's where I'd want my ad to show up. It's also owned and operated, or maybe not entirely, but the platform is owned by Instacart in that sense, whereas maybe it's not the same for in-store ads. That said, I'd like to see the easy, the no-brainer in-store ad solutions, I'd like to see those progress a lot faster. And that's something that DoorDash can be a player in, too, because they've got a lot of merchants across their ecosystem as well.

49:22So you're going to have a major, major scaled network. Yeah, well, definitely be something to watch. Hopefully the deal closes or, well, for them, I guess they hope it closes. And as you say, it may take a little while for the so-called synergies to actually be seen in the marketplace. But lots going on. Well, thank you, Andrew, for bringing the wisdom. If people want to learn more about your work, I know you're on LinkedIn, obviously, but where's the best way to learn more about your thoughts and what you do? Yeah, follow me on LinkedIn. And then I publish a pretty in-depth analysis at my Substack, mediaadsandcommerce.substack.com.

50:02All right. Well, I definitely recommend it. I love following your work. I always feel either, well, a mix of smarter and sometimes a little bit confused because definitely not an expert, but that's why we have experts on the Remarkable Retail Podcast. But thanks for joining us, Andrew. Look forward to seeing you out in the wild sometime soon. Yes. Who knows what part of the world we will find each other again. Thanks, as always, for having me.

50:30Steve Dennis: All right. We're back with a little more news. And let's talk about, well, we've talked about it in different contexts over the past, I don't know how many episodes. But let's talk about delivery prices as we head into the holiday. Yeah, this is certainly timely as we get to the heart of holiday shopping. The particular news story is that both UPS and FedEx raised their holiday surcharges for regular home deliveries by between 22 % and 25%. So that's a pretty big increase, of course, presumably. This all goes back to the fuel costs. So it's pretty typical for there to be a holiday surcharge. It's just that these are up quite a lot compared to last year.

51:15We did have, and I think we talked about it on the podcast, that earlier in the year there were surcharges that had already been added to deal with the increased fuel cost. So we've seen a pretty steady increase in the third-party delivery charges, some of it going back to tariff time, some of it just going back to when the war started and the fuel cost started to spike. So when you think about this on a per box, per delivery basis, this can be pretty significant to the overall profit, particularly on items that are very expensive to ship in the first place, like furniture and fitness and other things that are just big and bulky.

52:01Or even on small items when you may have a very small order value, because for the most part, you're getting charged per box or based on weight. not necessarily the dollar, well, not at all on the dollar value of it. So it's easy to absorb if you're shipping diamonds and$2 ,000 handbags, but not so easy if you're sending a$20 sweater or something. One of the things that a lot of people are speculating, though I haven't necessarily seen anybody comb the data here, so maybe this has not happened yet, is that in order to cope with this, retailers will be maybe dialing back some of their free delivery offers uh encouraging buy online pickup in store so have the customer do the work as opposed to a fedex or ups delivery driver maybe higher average uh order values to qualify for free shipping and i think also to avoid the kind of rush delivery charges, maybe earlier cut-offs for when you can be guaranteed to get your Christmas, Hanukkah, or whatever package.

53:10But as more stuff moves online, if people are thinking, well, gas prices are high, maybe I want more stuff delivered rather than me having to drive around to get stuff. I mean, this will be just an interesting kind of counterbalance.

53:23Steve Dennis: It's interesting you mention about what incentives create customers going to the store to do a pickup in-store. Because if you look conventionally, many retailers I know give you bonus points or give you free shipping if you're a loyalty member. We talk about loyalty a lot. But I could see a day where, and that day coming real soon, where you could get bonus points for picking it up in-store, like incenting the right kind of behavior from that perspective. So I think there's a lot of levers to be pulled. And I don't think consumers are totally resistant to it. Some are, you know, for different things.

53:57Steve Dennis: But I think we're going to see a lot of creativity coming up over the next six months to a year. Well, let's wrap the news with some focus on agents. The big news coming out of Walmart, and it's a lot of talk. I was at a conference this week and lots of folks were talking about not just this decision, but their own decision on whether to allow these AI agents into your backyard, into your store. Walmart, Amazon has said no way, for example. Whereas Walmart said, you know, open door, come on in, look around. We're so confident. My interpretation of that is we're so confident we're going to have the best price and you're going to find what you're looking for.

54:37Steve Dennis: We welcome agents to come in. So take us through it. What do you make of it? And Or do you think there's something else behind it? Well, I think that, as you point out, and we talked a little bit with Andrew in the interview, there are definitely different approaches to this. And Amazon, Walmart is being the most extreme. So yeah, Walmart is opening up their stores to these shopping assistants, ChatGPT, Gemini, Metas. Part of what they're doing, and I would say that I don't understand technically exactly how this works, but they're really allowing each agent to create their own profile on a customer's account as well as setting up some checkpoints, I guess, in terms of the customer's ability to say, well, I'm going to cap the amount of spending I will let the agent do, or I have to approve every order.

55:28So some of the concerns about these rogue agents taking off or customers not really understanding what they're giving authority to an agent to do, Walmart is putting these profiles in place to try to control that better and put more power in the hands of customers. So these will be launching here in just about a week, I guess. And they also have this other offering called an agent gateway, which is now in beta. So we'll see how all this really plays out. Amazon, whether that is, I mean, they've been saying that part of The reason why they're going slow, or not at all in some cases, on this is they really want to make sure that they are protecting the customers and really understand what's going on with the quality of the customer experience, whether that's the real explanation or not.

56:17I'm a little bit skeptical.

56:20Steve Dennis: Well, all of this was predicted in the wonderful TV show Silicon Valley. If you remember, they built an AI agent called Son of Anton, and Son of Anton ordered up 10 ,000 burgers because the instruction were, get me the best value on burgers for lunch, and a case of burgers showed up. So, you know, go back and watch some of those episodes. They're pretty spot on about the decisions and what's happening today. And by the way, we also have a great interview coming up in a couple of weeks with no less than Jason Del Rey, who's been thinking super, super hard about these things. He's got great things to say in his new product, The Isle.

56:55Steve Dennis: So that is an interview coming up in the next couple of weeks. Well, let's leave the news there. Let's get to our very popular What's on Our Radar Screen. Now, what's on your radar screen, and you hinted at it, is this big merger that's happening that has a lot of implications for grocers and media and all the people, the gig workers. I mean, there's a bunch of gig workers who probably work for both, but across the board, there's some implications. So talk about what you're thinking early days into this merger. Yeah, I mean, I've said probably most of what I wanted to say, but I think this is on the radar screen because presumably we'll start to get more information about the regulatory review that will go on.

57:36Again, that'll be an extended period, apparently. This news will be trickling out, and I guess we'll start to get some handle on whether this deal is in trouble or not. The other is, as I said, what will be the competitive response to this? Will a lot of retailers be like, oh, great, now we've got a more powerful service to help us marry up against the Amazons and the Walmarts of the world? Or will they start to look at some alternative? So, I mean, again, this is going to be perhaps over a year that we'll be watching this thing unfold, unless for some reason they're able to accelerate it. So this is definitely not like the next few weeks.

58:18This is really probably throughout most of next year.

58:22Steve Dennis: Well, on my radar screen, as we head into the go-go season of gift giving and apparel gift giving, is textile circularity. So, sustainability, in other words. This week, I moderated a panel at Retail Council of Canada's Retail Sustainability Conference with Canadian Tire, Holt Renfrew, and Goodwill Industries. When you start to peel back the layers on textile, and so it's both apparel and textiles like sleeping bags or whatever, let me lay some base stats down for you. So buy percentage of unwanted clothes. Where do you think it goes? Donate, 43%. Recycle, 31%. Give to friends and family, 22%.

59:02Steve Dennis: Pure throwaway, another 22%. 19 % in resale. This is one of these just general, what do people do? Keep 13%. That's me. I got just closets full of stuff. I'm just like, I don't want to know if I want to give it away. I'm still going to lose those 20 pounds. So I'm just not going to give that stuff away. The European Commission estimates 4 to 9%, it's a big spread, of unsold textiles are destroyed. That's a nice way of saying incinerated, by the way, before anybody even wears them, producing about 5.6 million tons of CO2. Now, what I'm looking at is how retailers are going to start dealing with this.

59:37Steve Dennis: And because I start to think, and I can throw buzzwords out here until the cows come home, EPR, extended producer responsibility. That exists in Canada and in many places for things like electronics. So you have to pay a fee. The retailer collects those fees. The brands collect them. Then they give them back to the governments to do final end of life for electronics, right? Right. So Holt Renfrew is doing something interesting. So Holt Renfrew is a luxury department store. And I don't know, how would you compare them? Like a Birdoff Goodman or like a Neiman Marcus, something like that? More like Neiman Marcus.

1:00:12Steve Dennis: More like a Neiman Marcus. Well, they've done a partnership with Shop and Shops with mine and yours luxury resale. So they decided we don't want to be the ones, we don't want to develop the skill of authenticating the brands, which is such a big, important piece of buying a resale Chanel bag or Hermes product. So they've gotten into that. But on the radar screen is if EPR, extended producer responsibility, starts to take place for textiles, watch out. It's happening in France and it's a mess because it is so complicated. And it basically, you know, we're experiencing it today here in Ontario where, you know, in your part of the world, you know, it could be the case that your municipality or the city of Dallas pays the fee to pick up recyclables from the curbside, right?

1:01:00Steve Dennis: That used to be what happens here in Toronto and Mississauga. That shifted last year where it is now a third party owned by the brands and the grocers who run that for the city. So it shifted the cost out of government budgets and to the brands and the retailers. In other words, the people who produce the garbage now have to take care of the garbage. This is what's called extended producer responsibility. Imagine if that starts to happen on apparel. Anyway, so it's coming. It's a when, not if. Could be 20 years. It's starting in Europe, and it's not going well. So anyway, that's on my radar screen because it is a massive cost as these things start to implement themselves.

1:01:42Steve Dennis: And it's a massive pain. It's very political. So anyway, keep your eyes on that. It might even be already happening in some communities for electronics and big ticket and furniture and mattresses. But let's keep an eye on that. We probably don't talk enough about that. We should do an episode next year about sustainability and circularity and all the costs and benefits and all that stuff. Anyway, great episode. Lots going on in retail. In addition to just holiday, there's just lots of great things going on. Let's leave it there. Thanks for tuning in. To help more retail leaders discover the industry's leading podcast, please drop us that five-star rating and review on Apple, Spotify, YouTube, or wherever you enjoy your pods.

1:02:25And for more on my strategic advisory services, keynote speaking, bestselling books, and even more retail industry insights, go to stephenpdennis.com.

1:02:36Steve Dennis: If you are a brand or service provider looking to take your influence to the next level, reach out to us for sponsorship, advertising, or event partnerships. And if you want to learn more about my own keynote speaking and advisory practice, reach out to me via LinkedIn.

1:02:55Bye.