What you need to know:

• Coles 360 is lifting Tesco’s retailer media template, bidding to take a greater share of trade marketing budgets before going after brand dollars by harnessing shopper data to prove spend equals sales.
• Boss Paul Brooks and strategy lead Sam Hegg say the business won’t just cannibalise existing trade marketing spend – and they want a greater share of FMCG budgets.
• But marketers say they want more data – and bulletproof reporting and measurement – before they commit.
• Brooks and Hegg say that proof-point is coming next quarter. But they say FMCG marketing and trade teams need to align to avoid disjointed, siloed approaches.
• Agencies have a role to play – and Coles will actively court them next year – but may be sidelined if brands cannot bring their own trade-marketing teams closer together, because agencies have no relationship with trade sales.
• Coles is already looking beyond FMCG, plans to target finance, insurance, entertainment, per Brooks.
• Hegg says Coles’ shift to centralised fulfilment via the Ocado model will double product lines – and therefore advertising opportunities.
• Next the business aims to harness loyalty data to find buyers around the open web, opening up ad revenues beyond its own properties.

Coles’ rebooted retailer media approach will be closest to the Tesco-Dunnhumby model, according to Coles 360 General Manager, Paul Brooks. The UK’s largest retailer uses its clubcard loyalty scheme, used by 20m UK households, to power Tesco Media, claiming an average ROAS (return on ad spend) of 6.6x across its owned digital channels.

Brooks said Tesco has a very different approach to the UK’s other “standout” retailer media player Asda, which has a smaller digital footprint and has primarily focused on commercialising physical real estate.

Coles, with 8.6m Flybuys members, sees the Tesco model as a template. Brooks said it won’t race all out for revenue.

“This is a long-term strategic play, not a tactical mop-up. We’ve got to lead with customer experience first – suppliers and consumers,” said Brooks. “Get those right and the byproduct is a successful business.”

Brooks, who spent 20 years in media agencies before a three-year stint at Nine, said retailers now have the edge in media via vast purchase data and customers coming expressly to buy. FMCG brands do not have that relationship and their alternatives are dwindling.

“Agencies and media owners have struggled with post-advertising. They have done a great job up to that point – but that’s when the journey stops. When a dollar is invested, retail media can demonstrate via closed-loop reporting how it's working, where it's working, and what it has delivered” said Brooks.

Privacy and platform changes render second and third party data less relevant, per Brooks. He thinks the future is “first party data that is closest to the point of transaction … which is why we are seeing the rise of retailer media.”

Coles 360 set-up

Officially launched last October, Coles 360 has partnered with Redworks, which handles sales and operations, plus media analytics outfit IRI to close the reporting loop. Its circa 50-strong team is embedded so that “media specialists sit with category managers and different commercial teams”, said GM Paul Brooks, of which there are “multiple dozens,” said Coles supplier media lead Jess Torre. The media unit won’t actively court media agencies “for the foreseeable future”, per Brooks, focusing solely on trade suppliers in year one, though it has been briefing agency groups when requested directly for big FMCG clients.

OOH push

Coles has installed 500 screens across its store footprint. It’s now weighing up multiple in-store screens and greater segmentation while negotiating partnerships with out-of-home pure-players for screens in and around stores and within shopping centres. oOh! Media is keen to push harder into retailer media, while Westfield owner Scentre Group also has significant ambition.

Trade before brand budgets

“Ninety nine per cent of our revenue is trade budgets tethered to a wider commercial relationship,” said Coles 360 Head of Strategy & Planning, Sam Hegg.

Trade budgets will remain the bulk of income when the retailer targets wider brand budgets direct and via agencies next year. But Coles must first create brand vehicles beyond search and sponsored product offers, currently the baseline of its digital media business.

“That could be content like recipe inspiration or unlocking more value from our partnerships such as the AFL,” said Hegg. “It's an obvious opportunity: Coles sponsors the AFL, Four ‘N Twenty Pies sponsors the AFL, or Pepsico; how can we do things together that unlocks value for both parties?”

Brooks insists trade growth will be incremental rather than cannibalising Coles’ existing revenue.

“Trade dollars exist in places I had never even considered before starting at Coles. It is so fragmented,” he said. “As everyone becomes more efficient with their delivery, as businesses start to invest in their retailer media capability, we will start to see some share shifts – because those historic trade budgets will be doing a better job [in terms of ROI] than they’ve done before. If we can demonstrate value and deliver on everything we’ve said we will, incrementality will follow,” said Brooks. “It has got to be incremental.”

Realigning trade and marketing

Retailer media requires closer alignment between marketing and sales at both suppliers and retailers to avoid disconnects and overlaps. Hence Coles bringing the merchandise and business unit teams that previously handled supplier media under the Coles 360 umbrella.

Within the FMCG companies, responsibility for media has traditionally been marketing’s remit, with trade negotiations under sales. The blurring of those lines will likely cause some tension. But Hegg and Brooks think FMCGs that best align functions will ultimately derive a better overall result. The likes of Nestlé are making those strategic shifts, but it is not yet universal.

“For many, brand and trade is siloed,” said Brooks. “FMCGs need to set themselves up to ensure everything is connected.”

Pipes and wires

FMCG marketers recognise the need to align trade and marketing for retailer media – and many are. But Pepsico CMO Pandita Vandey and Nestlé marketing boss Anneliese Douglass told Mi3 retailers must improve reporting and post-analysis rigour to take a greater share of their budgets, trade or marketing. Of marketers interviewed for Mi3’s Retailer Media Next report, v2foods CMO Jade Lish was most succinct: “If they gave me more data, I would invest more.”

Brooks and Hegg accept that view.

“Brands need to understand how their investment is driving incrementality versus investing against sales that were coming anyway. So we are rolling out reporting and analytics next quarter [Q2 2023] via IRI,” said Hegg. “It’s been a lot of work to connect all of the data and provide a very robust reporting solution. But we know it’s table stakes. Brands are telling us they will hold us to the same standards to which they hold agencies and publishers – and rightly so.”

‘Not a duopoly’

Brooks disagrees with suggestions that Coles and Woolworths will eclipse the Australian retailer media market, leaving other retail media players fighting over scraps.

“We’re not thinking ‘if we set this up that budgets will move [to us]’,” said Brooks.  “Australia will likely go through an iteration of a patchwork of [retailer] walled gardens, with perhaps another wave after that – and who knows what that will look like? But I don’t just see a duopoly. We’ve already seen two or three other bricks and mortar retailers move into media and they will have a role to play. You may even see other retailer media networks come together.” So Brooks sees a role to play for aggregators? “Yes I do.”

Agencies that add value have a role

If retailers are to take marketing dollars as well as trade, agencies will play a role.

But Brooks an Hegg think progressive media agencies with progressive FMCG clients have already grasped the nettle.

“FMCGs need to set themselves up so that everything is connected,” per Brooks. “If they do that, agencies will align themselves. It’s early, but we are starting to see some agencies starting to do that already, trying to take a holistic view across brand and trade. If they can get to that point, above the line and below the line boundaries disappear, siloes come down. So some agencies will be progressive, others may be the ones that struggle.”

Hegg said performance media agencies have skill sets that immediately apply to retailer media. “The performance principles of [retailer ad platform] Citrus are very similar to those of Google Adwords,” said Hegg. “A lot of brands manage that themselves, but agencies can make it work harder for them, so that is low hanging fruit for agencies. Beyond that, it’s about demonstrating they understand the retail media landscape and can advise brands from top to bottom, the advantages of full funnel co-ordination and the returns from co-ordinating that activity end-to-end,” he suggests.

“But it depends on whether brands are structured to take advantage of an agency’s capability,” added Hegg, who spent 20 years as a media agency exec prior to joining Coles. “If an FMCG brand operates trade marketing and brand marketing separately, it’s quite difficult for agencies to bring that together. Where we’ve seen holistic structures within FMCG brands, the benefits come quite quickly.”

Beyond FMCG: Finance, Foxtel, Ocado opportunity

As Woolworths-owned Cartology bids for expansion beyond FMCG and into it what calls “non-endemic brands”, Coles 360 has similar ambition.

“We are looking at certain categories – finance, insurance, entertainment, whether that’s Foxtel or a movie house, PlayStation – those kinds of areas that are already present in-store or online. We have those relationships and I think we can evolve them, potentially automotive as well,” said Brooks. “We’re planning year two and year three and what we need to do to be ready for that.”

In the meantime, Hegg said Coles’ shift to an Ocado-type fulfilment model, moving away from store level towards a centralised operation, will bring more FMCG budgets into play. “That unlocks huge value via a much broader product set, it means we can offer twice as many SKUs to online shoppers versus the store,” said Hegg. “It’s rolling out in Sydney and Melbourne in the near future and will inevitably bring greater commercial opportunity.”

On-off network, DSPs, BVOD, self-serve

Per Hegg, Coles will earn “the majority of our revenue from our own ecosystem. It’s incremental revenue and it can be high margin. You don’t derive that margin from off-network.” That said, “there is real value for FMCG brands to use our first party data through Flybuys or our broader CDP and target in other logged-in environments. So we should be setting ambitious targets around off-network and growing that as a percentage of our revenue”.

Brooks said Coles is open to partnerships to drive off-network growth. “Will we build our own DSP? Probably not. Will we partner with someone to be able to do that? That probably feels like the best of breed model.”

The two said Coles Media will add BVOD audience buying to the mix “soon”, with self-serve capability on- and off-network, including ad creation, also set to launch in 2023 – signalling a big year ahead.

A version of this article was first published in Mi3's Retailer Media Next report, a 74-page dive into Australia's retailer media market with input from 25-plus brands, retailers, platforms, publishers, agencies and analysts. 

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