Agencies sidelined as Cartology goes direct to brands for 98% of $300m retailer media advertising revenue – but buyers eye redemption in $150m Shopper Media deal
Of the estimated $300 million in revenue Woolworths’ retailer media arm, Cartology, banked last year, just over $7m came from the major media agencies.
Of the estimated $300 million in revenue Woolworths’ retailer media arm, Cartology, banked last year, just over $7m came from the major media agencies. This year, it’s likely to grow, but not by much – it’s understood SMI figures put agency spend at $5.6m so far in 2022. Cartology has been going directly to brands for ad dollars, leaning on long-standing trade relationships. Media buyers like OMG’s Kristiaan Kroon and Magna’s Lucy Formosa Morgan say they expect the agency pool to grow – but warn more dollars mean higher standards of auditing, benchmarking and measurement within the retailer's walled garden. But they suggest Cartology’s acquisition of out of home player Shopper will bring a bigger slice of agency ad budgets into play.
What you need to know:
- Circa 98 per cent of Cartology’s estimated $300m revenue comes not through the major media agencies but from Woolworths’ suppliers directly.
- While Cartology initially expected to get more revenue from agencies, and has an agency team, MD Mike Tyquin says the way Woolworths interacts with brands means deals have been done before agencies are brought on board.
- Magna’s Lucy Formosa Morgan says despite initial conversations with Cartology, which included topics like standard benchmarking and auditing, “the conversations went direct from there”.
- OMG’s Kristiaan Kroon says overseas markets ahead of Australia show agencies will strike major partnerships with retailer media, nodding to a deal inked in June by Omnicom and Walmart.
There was a lot of initial interest and discussion between Cartology and the agencies early on, but agencies were going to treat Cartology’s inventory as they would other inventory. You would expect quality control, metrics, and to evaluate it as they would any campaign ... The conversations went direct from there.
Agencies bypassed
Cartology is bypassing media buyers and going to Woolworths’ suppliers directly for advertising dollars, booking just $5.6 million from the major agencies so far this year despite north of $300m in revenue and rapid growth in the sector.
As PwC predicts $850m in retailer media revenues in 2022, holdco execs say they’re being sidelined because they hold Woolworths’ advertising inventory to the rigorous standards of other major media organisations.
According to figures from SMI, from January to August in 2022 agencies spent $5.6m with Cartology, which experts predict will hit $10m by the end of the year. This time in 2021, the equivalent spend at the end of August was $3.9m – which ended up a little over $7m by the end of the calendar year.
“There was a lot of initial interest and discussion between Cartology and the agencies early on, but agencies were going to treat Cartology’s inventory as they would other inventory: You would expect quality control, metrics, and to evaluate it as they would any campaign. It may have been easier [for Cartology] to go direct to clients, FMCGs, with trade negotiations,” Magna's Managing Director Lucy Formosa Morgan said.
“We were definitely having conversations with clients around benchmarking versus other media. The conversations went [to Cartology dealing] direct from there.”
It is hard to define retailer media, as Cartology’s revenue includes point-of-sale at shelf, in aisle items, digital catalogues and front of store screens – elements that would traditionally, and may still, be negotiated by the trade marketing team. It’s likely not all the $300m is new revenue, rather, it could be moved from elsewhere to the Cartology business. Either way, the money is moving.
“They’ve grown considerably, from $90m in their first year to $300m,” per one industry source.
“Part of that is shifting money, part of that is genuine growth. The agency part is genuine growth. But I don’t think Cartology appreciated that in going after the agency pot – the brand money – is a much, much bigger ask than leveraging supplier relationships.”
Omnicom Media Group’s Chief Investment Officer, Kristiaan Kroon, said retailer media is still its early days – “phase one” – but is beginning to mature.
“[Cartology Managing Director Mike Tyquin] does say, ‘we thought we would be having a lot more money from agencies so far’. When you look at any new media operation that comes to market, you’ll have the same process. There are early adopters, then you start to move through the stages of adoption. Cartology are the most advanced but look very much like they are at the final stage of phase one, moving to phase two. For all of their core trade advertisers, they seem to have grown the amount. You would say that is the benefit of a Cartology operation,” Kroon said.
“Looking at the US, retail media has been a much bigger thing for far longer. Walmart and Kroger have built really sophisticated offerings to the extent that an OMG partnership with Walmart was a big announcement at Cannes… We look to the US about where it will end up, which is where we are integrated members [retailer media] ecosystem. The UK is similar.”
But the 98 per cent direct portion of spend has not gone unnoticed. Indie agency Hatched, for example, recently opened a Sydney office recently with a dedicated retail and retail media division.
Cartology and Tyquin did not respond before deadline for this story but on a Mumbrella podcast earlier this month he said Cartology would deal more with agencies than it currently does.
“It’s mostly direct, and this is something that probably surprised us. I think we felt earlier on the journey that we’d be more agency focussed than we are,” he said.
“And that’s been outcome of how the brands want to work with us.” Category and product planning in brands happens far earlier than agencies are brought into the mix, he said, and long-standing relationships between Woolworths and brands mean agencies are not needed.
“We have an agency team, to be really clear, we absolutely do work with agencies and we see that as being an important part of our business going forward, and a growing part of our business going forward,” Tyquin said. “Certainly, with the acquisition of Shopper, media will be an even more important part of our business going forward.”
Shopper a bid for new brands, broader market
Investment chiefs are also curious to see how the $150m addition of Shopper into the Cartology stable, adding 2,000 screens across more than 400 shopping centres, will affect relationships and spend. The deal is subject to regulatory approval.
Buying Shopper is further evidence of Cartology's "attempt to move out of early adopter stage. That brings all sorts of new questions, sophistications and requirements", according to OMG's Kroon.
While core supermarket suppliers and brands are prepared to "pay more and forgive shortcomings", he reiterated that bidding for a greater share of new money via agencies is a different ballgame.
“Your proposition to a broader set of clients has to evolve substantially for that to be the case. You can no longer rely on the norms of trade marketing. You need finance controls, auditing of media, measurement, tolerances for inventory delivery. The bar for major media owners is multifaceted and high. For retail media, that is a big step.”
Formosa Morgan said she expected adding Shopper to the Cartology offering to bring more conversations into agencies where the media can be benchmarked against competitors.
“With Shopper coming on board, I would expect discussions to come back to the agency versus taking a bigger chunk separate [direct]. The value of agencies is looking at things holistically, looking at the overall objectives of the campaign for clients,” Formosa Morgan said.
She suggested Cartology now has greater incentive to lift the curtain if it wants to unlock new growth.
“We’re all curious to see how the acquisition of Shopper is going to play out.”
