How Retail Media Ad Platforms Are Rewriting The Walled Garden Playbook

American retailers have rushed into the online advertising sales business.

But when it comes to the underlying tech, retailers are taking a different approach compared to previous ad platforms.

The reasons behind the retail media rush are twofold: Boost their profit margins and retain their age-old in-store shopper marketing budgets. Retailers still want manufacturers to pay for the digital versions of shelf placement and coupon promotions, even as shopping shifts online.

To protect their data, these retailers have taken a walled garden approach with their nascent ad platforms. But retailers are charting a different course than the walled gardens that came before them, such as Google, Meta, Amazon and Snapchat. While retailers do create protective walls around their customer data, they also rely on programmatic vendors to pipe data and demand between their walled garden and the open ecosystem.

Walmart uses The Trade Desk as its DSP tech for Walmart’s off-site ad sales. Target’s Roundel uses Index Exchange and Criteo supply-side tech and taps Criteo and CitrusAds on the demand side. The retail ad tech company Quotient lost Albertson’s as a platform customer last year, but signed exclusive contracts with AutoZone and Hy-Vee, a midwestern supermarket chain. CitrusAds picked up part of the Albertson’s ad tech business.

The major walled garden platforms, including the retail media juggernaut Amazon, work with open programmatic sparingly, if at all. But the new varieties of retailer walled gardens are built on a foundation of open ad tech.

From grocery leaders like Walmart, Target and Kroger to smaller chains, the programmatic ecosystem should examine how data-driven advertisers can buy ads through retailer-owned platforms, and how retail media is distinguishable from other walled garden channels.

The big kahunas

It isn’t fair to compare other retailers to Walmart, the largest brick-and-mortar retailer in the world. The disparity is too vast.

But even the largest and most advanced retail chain still relies on third-party programmatic for its advertising business, known as Walmart Connect.

Walmart owns more of the ad tech stack than any other (non-Amazon) retailer. It acquired the SSP Polymorph Labs in 2019 and the ad server Thunder last year, phased out Criteo and AppNexus as demand platform partners and in-housed its retail media agency business, which formerly went through Triad. (GroupM shuttered Triad in 2020).

But for its DSP, it didn’t go the acquisition route, despite years of rumors that it would acquire a DSP. Instead, it switched from AppNexus to The Trade Desk in 2020 to provide the infrastructure for Walmart Connect’s off-site DSP. The tech is used by Walmart’s ad sales group to target customers across the web.

Amazon took matters a step further with the acquisition of Sizmek, which brings the same function in-house there – Amazon handles advertising on Amazon, while Sizmek’s job is to find potential shoppers across the web.

Walmart’s partnership with The Trade Desk is not a true open web programmatic integration, however. If a CPG advertiser uses The Trade Desk and Unified ID 2.0 IDs, it could theoretically identify Walmart customers on the open web and elsewhere or use Walmart audience segments for analytics without Walmart’s involvement.

That tactic would be legal – in the US, at least. It would be verboten In Europe with the GDPR. But Walmart won’t stand for it regardless.

To avoid any data leaking out, Walmart uses a separate, cloned version of The Trade Desk. It contains The Trade Desk’s same account sign-ins and familiar UI, the same in all ways except that advertisers can’t export programmatic IDs to compare alongside other open web campaigns. And, of course, it adds the ability to attribute based on Walmart store sales.

It is, in other words, a walled garden platform. But one with The Trade Desk-branded pipes running beneath it.

Target and Kroger’s retail media approach

Target and Kroger are silver and bronze medalists in the retailer ad platform category. (Target reported $1 billion in ad revenue in 2021, to Walmart’s $2.1 billion. Kroger doesn’t disclose ad revenue but is likely next largest in terms of brick-and-mortar retail advertising.)

Target and Kroger, as with Walmart, use a hybrid approach to their tech. The two chains show how even at the top of the retail category, there’s a wide spectrum of ways a platform can straddle a walled garden mentality and the open programmatic web.

Target’s retail ad platform is the most open – you could even say exposed – to third-party programmatic.

When Roundel, the Target media business, announced its new platform in 2019, it pitched an SSP partnership with Index Exchange as a differentiator from Amazon’s more closed tech. To use Amazon audience segments and attribute ads to sales (the main point of advertising on Amazon), advertisers must use Amazon’s DSP. Target loads its data into an SSP, Index Exchange, which operates a private marketplace that outside DSPs can plug into.

Target also works with many demand-side partners. The Trade Desk and Yahoo each have a deal that allows them to attribute Roundel ad impressions to Target store sales on a daily cycle. Criteo and CitrusAds struck demand-gen contracts to drive traffic to the Target site or app with commission structures.

Integrations beget integrations, however.

Target opened its platform to CitrusAds and Criteo retail media networks last year. They in turn brought DSPs like Skai and Pacvue, which both began serving ads to Roundel for the first time in 2021.

The nitty-gritty details of Target’s platform are more open, too. The main example: The Amazon DSP.

Since Walmart owns its supply-side tech and has an iron grip on The Trade Desk as exclusive DSP, it can strictly control anything an advertiser does. Target has an exclusive SSP partner and is open to outside DSPs. Which means the Amazon DSP can purchase Target ads.

And not just that, but an Amazon DSP advertiser can tag their Roundel creative and create a retargetable segment of Target shoppers, if they can be identified with a third-party cookie or by email, said Jessica Gordon, senior director of Amazon DSP for the commerce ad tech company Ideoclick.

Amazon won’t let an advertiser retarget or attribute a specific audience segment unless it reaches a minimum threshold of users, usually in the low thousands. (With a smaller list the brand could parse the data to identify individuals.) But serving tens of thousands of ads to Roundel will get the advertiser to the minimum threshold, and then they have a list of known Target shoppers who can be retargeted or analyzed on Amazon, Gordon said.

Walmart doesn’t allow Amazon DSP tags at all. Neither does Kroger.

Kroger had a managed service-only ad platform until last October. In the half-year since, Kroger has opened its platform to programmatic vendors.

In October 2021, Kroger Precision Media, its data-driven ad business, launched a proprietary private marketplace product. Advertisers using a separate DSP can layer in Kroger first-party data to attribute campaigns across the web. With the Kroger PMP, an agency can use traditional retail industry KPIs like store sales or household penetration to judge online campaigns, said one agency buyer who tested the product.

The Kroger PMP is an open programmatic program – except for one: no Amazon DSP allowed.

Last month, Kroger also opened its on-site inventory to third-party DSPs for the first time. Pacvue, Skai and Flywheel Digital, an Amazon-native ad tech startup, were the three inaugural partners.

Even if Kroger has in-house approach to programmatic, that still means working with multiple partners, unlike a social media platform’s walled garden approach to in-housing.

“Some of the biggest retailers with in-housed offerings are still working with several providers, who I know very well are themselves often working with multiple platforms,” said Sherry Smith, Criteo’s executive managing director of global retail media. “I don’t think it’s something the retailers or vendors will be vocal about.”

The retail media mid-market

The retail industry behemoths are still testing and tinkering with walled garden and programmatic dynamics. But smaller chains aren’t waiting for the biggies to figure it out.

The mid-market has become a major biz dev opportunity for retail ad tech. As tier-two retailers like Albertson’s (the number-five US grocer) in-house their own platform operations, smaller retailers are filling the gap by spinning up their own retail media tech.

It’s the retail media circle of life.

The retail ad tech company Quotient, for instance, was Albertson’s exclusive platform vendor for years, but the partnership went sour over in-store coupons (the two are embroiled in a lawsuit).

In the past year, Quotient signed retailers like AutoZone and Hy-Vee that are new to advertising, so the ad tech partner will serve ads on their sites and use the shopper data for Quotient campaigns. Meanwhile, CitrusAds took over part of Albertson’s ad tech business vacated by Quotient.

Instacart is also making a play to become the ad tech spine for smaller and regional chains.

Last month, Instacart debuted a product for serving off-site ads (aka ads directly on other retailer sites and apps, not just in Instacart). This puts Instacart in the same territory as programmatic vendors trying to lock in retailer contracts.

Instacart’s first ad tech platform customers are Schnuck’s, Plum Market and Good Food Holdings, all regional chains.

Instacart ad sales VP Ryan Mayward told AdExchanger that the off-platform ad tech business is focused on mid-market chains, since giants like Walmart, Target or Kroger have their own product teams, high-traffic sites and sophisticated platforms. Schnuck’s may be beloved in Missouri, but it’s not trying to contest Amazon’s ad revenue growth or engineering hires.

The mid-market expansion is important to keep an eye on, however. As with Albertson’s and Quotient, a retailer that works with a programmatic vendor will learn and become more comfortable operating the platform itself. If the ad business is successful, there’s a strong incentive for the retailer to in-house the ad tech, because advertising margins are fat compared to lean retail grocery margins.

A grocer can’t squeeze 10% of savings from product prices or fulfillment. It can’t simply grow web traffic or app installs by 10%. But if a vendor charges a 10% media fee, winnowing down that fee by in-housing can look like an opportunity for the retailer.

Buying retail media programmatically

As retailers spin up media businesses, buyers need ways to orchestrate their campaigns across all the different networks. That’s where companies like Skai, Pacvue and Flywheel Digital come in.

Retailers may not love the idea of outside bidders on their platform, said Nich Weinheimer, GM of strategy and commerce at the retail ad tech company Skai (formerly Kenshoo, which helped brands buy across social media walled gardens).

Outside programmatic brings unique value to the retailers, Weinheimer said. Skai, for example, buys ads on Amazon, Instacart and Walmart, with the goal of helping brands move budget more fluidly between platforms. Criteo doesn’t buy ads in any of those walled gardens, because it locks in direct retailer deals and those three aren’t interested. But retail media advertisers need the wider lens.

If Heinz is out of stock in a Kroger or Target location, say, Skai may direct another condiment brand to increase spend at that retailer to pick up customers who would have defaulted to the go-to ketchup. If Heinz is on sale at Kroger, the brand may shift spend to Target to avoid buying ads on sales the brand won’t win.

By seeing across many stores, a vendor like Skai or Pacvue can bring more competition to retail media ad auctions.

And while grocers are the first movers in in the retail walled garden category (stores already have shopper marketing businesses in place with CPG brands, after all), programmatic vendors are bringing whole other retail categories in to the mix.

Quotient added AutoZone; Criteo’s latest major retailer account wins include the craft chain Michael’s, Best Buy and Nordstrom’s; CitrusAds recently added Petco.

Brick-and-mortar, brick by brick

The open tech approach in retail media is a refreshing change for the programmatic landscape, compared to other walled gardens that simply blot out the sun. But as budgets grow, it is possible that retailer ad platforms will become more and more similar to the major walled gardens, with fully owned ad tech and policies that prevent outside data collection or ad serving.

Amazon, after all, made a similar transition from open to closed. In 2019, The Trade Desk and dataxu were allowed to use third-party ad IDs to buy Fire TV inventory. The Trade Desk CEO Jeff Green called Fire TV’s third-party program a “monumental move by a big tech player.”

A few months later, dataxu was acquired by Roku and then kicked out of the Fire TV program. A year later, the Trade Desk was quietly kicked out as well. Only the Amazon DSP can now identify Fire TV audience targets.

Amazon wasn’t really exploring the notion of open programmatic. It just needed more demand to buoy Fire TV ad rates and improve ad diversity (viewers were getting ticked off about seeing so many repeat commercials). Once the Amazon DSP had the scale of demand to do that on its own, The Trade Desk wasn’t needed anymore.

The same could be said for Target, Kroger or Walmart. They’ve opened up to programmatic demand – in Walmart’s case, also via an exclusive deal with The Trade Desk. If at some point the demand is there without the vendors, those third-party partnerships may end as well.

But walled garden fortresses aren’t the inevitable wave of the future. Retail media has shown that there are navigable options that combine both programmatic tech and a walled garden mentality around protecting user-level information.

Programmatic is tougher to in-house than agency services, too, said Criteo’s Smith – who would know, since she was the CEO of Triad while Walmart in-housed the agency business.

The biggest challenge to in-housing a retail media operation, according to Smith, isn’t the tech; It’s the people.

When Walmart let Triad go, it straight-up hired people from those teams to continue doing the same job, now with an official Walmart corporate email account. But even those roles are core proficiencies for major retailers, who already have agency-style accounts with the big brands they carry. Hiring and retaining engineers and experienced ad tech product managers is a different kettle of fish.

“Very few retailers have the capability and the talent to actually think about building their own staff,” Smith said. “Will they get there at some point? Maybe a few of them will.”

How Retail Media Ad Platforms Are Rewriting The Walled Garden Playbook