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One of the ironies of this year’s price storm surrounding UK supermarkets is that if grocers are “greedy” about the country’s food, they are doing it very badly.

Competition regulator concluded in July that competition was weak not the reason Food prices soar: Retail grocery operating profits fell 42% in 2022-23.

Supermarkets often look for profitable business, such as selling fuel, to keep food products competitive. The latest involves your eyeballs and your data.

The concept of “retail media” has been around for a long time. Supermarkets have always used promotions, banners or Tannoy announcements to boost sales of certain products – often funded by the relevant manufacturers. There has long been talk about the growth of e-commerce and the opportunities presented by supermarkets’ customer data, particularly from loyalty programmes. The idea is to sell in-store or online advertising to consumer goods companies that desperately need targeted marketing and measurable returns.

In a sense, this is the Amazonization of retail: Sponsored products promoted by the US tech company accounted for two-thirds of US retail media in 2021, according to Boston Consulting Group.

With others now joining in, this type of advertising Predicted to be Media buyer GroupM aims to reverse a slowdown in the digital market, with revenue set to surpass TV advertising revenue by 2028. The phasing out of cross-site cookies that track users’ browsing makes the walled gardens of retailer websites and loyalty programs even more valuable.

Consumer groups are moving their money. Exane analysts noted that Nestlé highlighted its forecast that one-fifth of industry media spend will be through e-retail by 2025, while Unilever’s retail media spend has tripled over the past three years, potentially reaching its total budget of a quarter.

One retailer told me that it had doubled its online advertising inventory and increased its in-store space tenfold in the last year. In-store screens can be quickly changed based on the time of day or weather; online personalization can effectively expand advertising space even further.

Compared to the arduous work of moving food, this is something profitable. BCG expects gross profit margins in retail media to be about 80%, compared with 20% in grocery retail; at the operational level, the gap may be even wider, with profit margins for large supermarkets being 3-4%.

Tesco and Sainsbury’s have well-established loyalty programs and data analytics operations but are tight-lipped about how big they might be or how big they might be. Sainsbury’s said the Nectar360 loyalty and marketing business could add an additional £90m to profits in the five years to March 2026 on an unspecified basis. Tesco boss Ken Murphy commented that retail media could become a “meaningful profit contributor” within three years. Shore Capital’s Clive Black believes it could reach £200m-300m in the 2027 financial year, or 8% to 12% of last year’s operating profit.

It will be easy to start writing down larger amounts. In the more developed U.S. market, Walmart said it hopes to increase sales to about 6%, compared with less than 1% last year. Kroger’s media revenue falls under “alternative profit streams,” which include other businesses such as financial services. It accounted for a quarter of last year’s operating profit.

But there are reasons to be cautious. As retail media continues to expand its horizons, supermarkets need to exercise caution when using customer data, even if they have permission through their loyalty programmes. Supermarkets already offer “off-site” advertising to brands on the wider web. The next frontier Ocado is exploring is so-called non-local advertising, where supermarkets’ rich data sets are used to advertise products not sold in grocery stores, such as cars, holidays or credit cards.

One question for investors is how much of the media profits are simply reinvested in the food competition. Another question is how this affects the crucial (and sometimes fraught) relationships between supermarkets and suppliers. The lines between traditional trade budgets for product promotion and new retail media campaigns are currently blurry.

But the biggest test may be whether retailers can resist the temptation of high-margin ad sales to prevent food consumers from becoming overwhelmed by marketing in-store or online. Success in retail media will depend on grocers’ ability to leverage customer data to sell ads without making shoppers feel like pieces of meat.

helen thomas@ft.com

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