Retail as an Partnership Advertising Platform

After 10 issues, I have learned more than I could have imagined about the retail industry and am ready to share the first part of my thesis. As part of this journey with “Retail Is Not Dead?”, I want to develop a perspective and thesis on how to succeed as a startup with retail as a big part of the business. It will apply to both retailers and brands. The first part is as follows:

To be a successful retailer, especially in food & beverage, you need to have a partnership advertising component. On the flip side, as a brand, you need to actively develop a retail partnership advertising strategy.

This strategy has been part of retail for a while, now it is just evolving for social media and ecommerce. Historically, advertising has always been a part of retail and a revenue stream for retailers. Typically, advertising revenue comes in two forms. First, pay-to-play, AKA slotting fees, where a supplier pays a lump sum to a retailer to be featured. This fee can manifest in the form of a payment, a discount only in that retailer, an investment in an endcap display, or some other form of investment in the store. More recently, with the rise of ecommerce, retailers have turned to their email lists and websites to create an omnichannel, digital-focused ad network for brands to leverage.

One of the leaders in the retail advertising space, Target, has been selling digital ads for over 10 years. More recently, this business has taken off and is now one of the fastest-growing revenue streams in the business. Target gets this advertising revenue from selling ads on their site, selling ads on other sites they partner with, and in their social media/email list/digital flyers. After an increased focus on this area, Target now has the fourth largest retail ad network, behind Amazon, Instacart, and Walmart. This success has led other large retailers, like Costco and Home Depot, to launch their own ad networks.

It is clear this strategy works for large companies, but why should startups care about it and try to replicate it? Instead of going zero to many with marketing digitally, you need to work with a few partners in a more connective way. In Issue #7, I covered how PopUp Bagels has adopted this strategy. To summarize, PopUp uses its reach (both physical store presence and large social media following) to partner with CPG brands as an advertising platform. Below is a summary of their partnership with Sun-Maid raisins.

PopUp is very intentional with its partnerships, typically only doing one per week. This allows them to invest deeply in the partnership from a focus standpoint, break through the noise, and also charge more per opportunity. For any retailer that sells food (coffee shop, grocer, restaurant, etc.), you should have at least one special menu item a week that is essentially sponsored by a brand in a thoughtful, unforced way, like a Franks Hot Sauce cream cheese at PopUp or the Vacation Sunscreen smoothie at Erewhon, another retailer that executes this partnership strategy brilliantly, or the Mike’s Hot Honey Latte at Blank Street Coffee. Additionally, brands in the space should also be proactively seeking retailers to partner with. Smaller startups may not have the resources to do everything, but this partnership type is something every startup should do regularly early on as a cost-effective way to build the brand.

Like anything in the new retail world, strategies can be utilized in both retail and ecommerce. On the brand side, in particular, partnership advertising can be a huge opportunity on your website. For instance, if you are a brand with limited SKUs, like a sunscreen brand, chances are there are some complimentary products you can add to your site like a sunscreen brand adding flip flops per sale. The brand will most likely never get into flip-flops, but it is a natural fit. Here, you will get a commission for every pair sold, like a different form of advertising revenue. In the real world, this can help keep you alive longer. For instance, early on, publicly traded medical clothing company FIGS made most its revenue selling Crocs. With the advances of cross-selling technology on Shopify in particular, like Shopify Collective, Carro, Canal, and Rye, it is simple to get started. However, there still needs to be a natural fit between your product and the product that you add. Space on your site is valuable and you shouldn’t undersell it.

To summarize:

1. Anyone selling food and beverage in a retail environment should work with brands to create limited time offers and vice versa

2. Brands with an ecommerce presence should use cross-selling technology to add complementary products

Like everything in retail, advertising is not dead, instead, it is shifting. How brands and retailers transact is changing, but the transaction is still there. With social media and ecommerce, partnership advertising is a valuable revenue stream. Instead of paying for space on a shelf or in a flyer, brands now pay for the digital version. As the advertising shifts, both brands and retailers will need a strategy for the evolving landscape. If you are building tools that help partnership advertising in the new retail world or know of anyone doing so, would love to connect!