Colin Lewis explores the distinctions between the US, UK and European retail media markets – and explains why difference isn’t a bad thing.
Everywhere I travel, people say the same thing: the ‘US is so much further ahead, and there is so much to learn from it.’
If you are on mainland Europe, the UK is perceived as being ahead in retail media. If you are anywhere else, the UK and US are seen as being ahead.
The refrain is always ‘someone else is better than us.’
This is a faulty diagnosis of what exactly is really going on. It’s also not very useful to help define your strategy if you are a retail media network or a brand using a retail media network.
Why? It compares fundamentally different market structures as if they were the same.
Europe is not one country. The continent has 44 countries. The European Union has 27. And, to state the obvious, Portugal is very different from Poland, Greece is very different from Sweden even though they are all…ahem…Europe!
The US is one market with one federal government, one market, not dozens of countries stitched together.
Bad strategy starts with a bad diagnosis
Richard Rumelt’s seminal book, Good Strategy, Bad Strategy opens by saying that the ‘core of strategy is always discovering the critical factors in a situation and designing a way of co-ordinating and focussing actions to deal with those factors.’
Rumelt simplifies this to say that ‘strategy is designing a way to deal with a challenge’. He defines a good strategy in three different steps:
- Diagnosis: defining the real challenge.
- Guiding policy: the overall approach to overcome this challenge.
- Coherent actions: the focused set of actions that work together.
What does Rumelt say is a bad strategy? Bad strategy substitutes a comforting story for a proper diagnosis – defining the real challenge.
What is a good starting point for diagnosis? I believe it is the ‘origin’ story of retail media in the US and Europe.
The US origin story for retail media
Andrew Lipsman relates a story from around 2011 when display ads for Kraft and P&G brands started appearing on the Amazon.com and Walmart.com homepages. His boss remarked at the time: ‘that’s really interesting—it’s almost like a digital endcap’, noting the parallel between these online branding opportunities and CPG brands’ long tradition of shopper marketing in-store displays.
In January 2022, Amazon broke out advertising as a standalone line for the first time and revealed a $31bn business.
Today Amazon has roughly $400bn-plus in ecommerce and marketplace revenue with a $70bn retail media business attached. Walmart is the world’s largest retailer at around $681bn in revenues with a $4bn retail media business.
What is our diagnosis here? The US retail media space is dominated by two behemoths with a size and scale that does not exist anywhere else in the world. Comparisons with the US are ‘apples and oranges’.
A second point of diagnosis is that comparisons also ignore capabilities: the rise and scale of digital commerce in the US means that capabilities in terms of expertise, logistics, technology and investment dollars exist simply because of scale.
The European origin story for retail media
Even if comparing individual countries across Europe is a fool’s errand, there are some similarities.
There is lots of competition. I counted ten grocery chains in the UK, not including franchises. France has Carrefour, Leclerc, Intermarché, Auchan, Monoprix in France. Most markets have Aldi and Lidl in addition to the main grocery retailers.
The US grocery market is regional and relatively unconcentrated nationally. Who is the largest grocer? Kroger, however its still only operates in 35 of the 50 states. Nothing like the ubiquity of Tesco or Sainsbury in the UK, Carrefour in France, or Zabka in Poland, who are on every street corner.
There are few cross-border retailers. Schwarz Group (Lidl) has built on a pan-European discount model and Ahold Dehaize has a European presence under local banners. Carrefour operates in a few markets, but recently pulled out of Italy.
What about digital commerce? It varies across category; for France digital commerce has about a 10% penetration, Germany is in low single digits, around 1–3%. Spain is about 3%. The European average is 6.5% according to McKinsey.
What about the shopper in each country? Very different. A fun story from the Italian grocery market to illustrate the point: when I asked an Italian retail media expert why digital commerce had not taken off there, I was told that shoppers like to “feel” the produce in store – literally pick it up in their hands and look at it!
Europe also has some of the world’s most mature grocery loyalty set-ups: Dunnhumby was founded in 1989 and Tesco launched the Clubcard in 1995.
What about Amazon? Amazon has real scale in a handful of European markets, but almost nobody buys their groceries on the platform!
Finally, there is legislation: this is the only data point that all retailers have in common – GDPR. All retailers operate under the tightest consumer protection legislation in the world.
The strategy diagnosis restated
The ‘US is ahead’ narrative fails Rumelt’s first test of real diagnosis. The two markets are different industries with different origin stories, different shoppers, different competitive structures, and different legislation.
They are the same industry at different stages of development.
This means we don’t have to import playbooks from market with a different competitive structure. The Walmart Connect approach does not solve the Italian retailer’s problem.
Build retail media strategy on the structural reality of your own market.
The right question is not ‘how do we catch up? I would suggest the following are better questions using Rumelt’s ideas:
- What does my industry look like in this market?
- Who is my shopper, and how do they actually buy?
- What capabilities do I already have others do no?
- What set of actions work together in this context?
The ‘Great Continental Divide of Retail Media’ is real – and that’s OK
Europe will not catch up with the US. There is nothing to catch up to: they are playing a different game with different rules, and the smartest European retail media networks already know it.
The great continental divide is real – and that is how it should be.
