The Warehouse Group has a plan to keep prices low as recession looms


The platform, from Australian startup Zitcha, also gives brands deeper insights into the effectiveness of digital ads in driving product purchases. 

“We can do a much better job [than Google or Facebook] of saying, ‘If you advertise to this group of people, I can connect that behaviour with a purchase’ – because we can actually see both of those things,” The Warehouse Group’s chief customer officer Jonathan Waecker told Inside Retail.  

Rise of retail media

Retailers have long made money off of their ability to connect customers with brands at the point of sale – through coupons and in-store sampling, for instance. But this has been turbocharged in recent years, thanks to the rise of online shopping and digital advertising. 

Waecker pointed out that Amazon Ads is more lucrative than the e-commerce company’s online marketplace business, and both Walmart and Target in the US have sizable retail media offerings: Walmart Connect and Target Roundel, respectively. 

“It’s table stakes in the northern hemisphere,” Waecker said. “In this part of the world, it’s an emerging behaviour, but it’s something that is becoming more and more expected.”

The Warehouse Group reported a 55 per cent increase in revenue from its retail media business in the first half of FY22, after launching Zitcha on The Warehouse, Warehouse Stationery, Noel Leeming and TheMarket. It has yet to roll out the platform on Torpedo7.

“There’s a lot more money coming into it, and that has to come from somewhere. I’m not hearing about brands increasing their advertising budgets, so that tells me they’re sacrificing certain channels in favour of retail media channels,” Waecker said. 

Despite this, he said that The Warehouse Group isn’t competing with Google and Facebook for advertising dollars, since it often ends up placing ads on those platforms on behalf of brands.

“For example, Samsung could come to us with $100, and we would put $50 onto Google, Facebook and TikTok, and the other $50 onto our own sites, and optimise the entire thing for what Samsung is trying to achieve,” he said. 

He said that conversion-focussed ads on The Warehouse Group’s websites cost about the same as a Google Ad, while brand-focussed ads are the same or cheaper. 

Reinvesting in price

Waecker said The Warehouse Group will reinvest the revenue it generates from its retail media business into keeping prices low. 

“We’re reinvesting that revenue into price every chance we can get,” he said.

This is critical at a time when the cost of living is rising and consumers are scaling back their spending on discretionary items. 

“We just had our worst consumer sentiment on record last week,” Waecker said, referring to the Westpac McDermott Miller Consumer Confidence Index, which has fallen 13 points from the last quarter to 78.7. The long-term average is 110.2. 

“I think we’re seeing a lot of things starting to come to life in a way that will dramatically make consumers feel less confident,” he said.

So far, consumer spending is holding steady at around the same level as last year, but a bigger slice of the pie is going to fuel, food and travel. 

“Travel is the more aggressive shift,” he said. “ In the past, you’d see people putting it in the discretionary bucket, now they’re almost treating it like a necessity, where they’re actually spending less on things like DIY, health, or books.” 

But despite the challenging macroeconomic environment, Waecker believes The Warehouse Group will still be able to attract customers, especially The Warehouse, thanks to its positioning as a value retailer.

“We’ve spent the last three years really trying to improve our quality perception. A lot of our products have sustainable attributes now, and we’re seeing those products do better than others,” he said. 

“Even in a flight-to-value market, people are redefining what value means, and they’re really putting a premium on things that are sustainable like recycled puffer jackets, high-efficiency heaters and things like that.”

The Warehouse has also been experimenting recently with a limited range of groceries at extremely low prices. Customers can buy classic breakfast items, such as butter, toast, eggs, milk, Weet-Bix and coffee, for about $6 less than the supermarkets, Waecker said. 

“We’ll continue to find ways to do versions of that as we keep going forward,” he said.

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