Latest / The DTC Marketing Podcast with Fexingo: Direct-to-Consumer Brands, Shopify, and E-Commerce Growth / Why DTC Brands Are Ditching Google Ads for Retail Media
Transcript
- Lucas: So here's a number that stopped me this week. Retail media networks — think Amazon Ads, Walmart Connect, Instacart, even CVS Media Exchange — now account for roughly 20 percent of total digital ad spend in the US. That is nearly sixty billion dollars in 2025. Luna: Wait, sixty billion? That is more than I've seen predicted. And most of that growth is coming from DTC brands who used to be all-in on Meta and Google, right? Lucas: Exactly. And that's the shift I want to drill into today. Because for years, the conventional wisdom for any new DTC brand was: launch on Shopify, pour money into Facebook and Instagram ads, optimize for a three-to-one ROAS. But the cost per click on Meta has gone up something like 40 percent since 2021. Meanwhile, Amazon's ad business alone grew to over forty-seven billion dollars last year. Luna: So the argument is that retail media offers better targeting because it's based on actual purchase data, not just browsing behavior? Lucas: That's the core of it. With Meta or Google, you're targeting intent signals — search queries, lookalike audiences, interest categories. But with retail media, you're targeting people inside a marketplace where they already have their credit card out. And you get closed-loop attribution: you know whether that impression led to a sale because the entire transaction happens on the same platform. Luna: That does sound powerful. But I've heard founders complain that Amazon Ads can be just as expensive as Meta, and the creative control is way more limited. You're basically working inside a template. Lucas: That's a fair critique. Amazon's ad formats are more restrictive — you've got sponsored products, sponsored brands, and display, but you can't do the kind of lifestyle creative that works on Instagram. So the brands that succeed there tend to have packaging that pops in a thumbnail, a clear price advantage, or really optimized product listings. Luna: And what about Walmart Connect? That's been growing fast, but my impression is that it's still smaller and less mature. Lucas: Walmart's ad business did about four billion last year — so a tenth of Amazon's. But the interesting thing is that Walmart has in-store traffic that Amazon doesn't. They're testing in-store digital screens and scan and go receipts that could eventually close the loop for omnichannel brands. For a DTC brand that's trying to get into physical retail, Walmart Connect might be the better bet. Luna: Let me ask about a concrete example. I've seen Olipop — the soda brand — shift a big chunk of their budget from social to retail media. Any idea how that's working for them? Lucas: Olipop is a great case. They've been aggressive on Amazon — using sponsored products for high-volume search terms like 'healthy soda' and 'prebiotic soda.' And they use Amazon's demand-side platform to retarget people who viewed their product but didn't buy. I've heard their return on ad spend on Amazon is around four to one, which is competitive with what they were getting on Meta in 2022. Luna: Four to one is solid. But I wonder if smaller brands — say, a two-year-old supplement company doing two million in revenue — should even be on retail media yet, or if that's a later-stage play. Lucas: I think the answer depends on where they sell their stuff. If they're primarily selling through their own website on Shopify, retail media doesn't help them directly because they can't advertise on Amazon unless they sell on Amazon. So for early-stage brands, the priority is still building demand on social and search. But if they're already on Amazon or Walmart's marketplace, they should absolutely test sponsored products with a small budget — maybe five hundred dollars a month — just to see if the unit economics work. Luna: That makes sense. And what about Instacart? They have an ads business too, but I think of them as more for CPG than for DTC brands. Lucas: Instacart Ads are interesting because they reach the grocery shopper specifically. If you're a DTC food brand like Magic Spoon or Banza, Instacart is a natural fit. You can sponsor your product in the cereal aisle and target people who've bought similar brands. The average order value on Instacart is like thirty-five dollars, so the basket is there. Luna: So with all these options, how does a DTC marketer decide where to put their next dollar? It seems like the old 'put everything on Facebook' simplicity is gone. Lucas: It's definitely more fragmented. I think the emerging framework is: use social to build awareness and retarget visitors to your DTC site. Use search to capture high-intent queries. Use retail media to capture purchase-ready shoppers on the platforms where they're already buying. And the key metric isn't just ROAS — it's contribution margin after ad cost, because retail media fees can eat into your margin if you're not careful. Luna: Contribution margin — I like that. Because a four-to-one ROAS on Amazon might actually be less profitable than a three-to-one on your own site if Amazon takes a fifteen percent referral fee on top of the ad cost. Lucas: Exactly right. So you have to factor in the marketplace fees. Let's say you sell a twenty-dollar product. On your own site, you keep the full twenty minus payment processing. On Amazon, you pay a fifteen percent referral fee, so that's three dollars gone. Then if you spend five dollars on ads to get the sale, your net is twelve dollars. That's still a sixty percent gross margin — fine — but you need to know those numbers before you scale. Luna: Hey, before we go further — a quick note. We don't run ads on this show, and that's a deliberate choice. If you find today's discussion useful and want to help keep it that way, there's a simple link: buy me a coffee dot com slash fexingo. Lucas: Yeah, it genuinely makes a difference. Even a small contribution helps us keep producing these deep dives without commercial interruptions. Luna: Alright, back to retail media. So what about the argument that retail media is just a way for Amazon and Walmart to siphon more margin from brands — that it's essentially a tax on marketplace sellers? Lucas: I've seen that argument, and there's some truth to it. Amazon's ad revenue is now a huge profit driver for them. But look at it from the brand's perspective: if the ads are profitable, it's not a tax — it's a cost of acquisition. The danger is when brands get addicted to retail media and can't sustain a DTC channel of their own. Luna: So you're saying retail media should be a complement, not a replacement, for owned channels? Lucas: Exactly. The most durable DTC brands I've seen have a multiple-channel strategy. They use retail media to capture the marketplace customer, but they also invest in email, SMS, loyalty programs, and their own site to keep that customer relationship direct. Because if you build your entire business on Amazon, you're renting their audience. You don't own the customer data. Luna: That's a crucial point. And I think we're starting to see a duopoly forming — Amazon and Walmart — in retail media, much like the Meta and Google duopoly we've had for years. Is that a risk for brands? Lucas: It is a risk. If Amazon becomes the default ad platform for product search, they have pricing power. We've already seen average cost per click on Amazon rise — it's up roughly 25 percent over the past two years. So brands need to be disciplined. That means testing smaller networks like Instacart, Criteo, or even TikTok Shop's new retail media offering. Luna: TikTok Shop has a retail media network? That's new to me. Lucas: They started testing it late last year. It's essentially in-feed shopping ads with attribution. If you're a DTC brand with a strong video presence, it could be interesting. But it's early — the software is clunky, and return on ad spend is inconsistent. Luna: So we're really in a period of experimentation. What's your advice for a DTC marketer listening right now who's never tried retail media? Lucas: Start small. Pick one platform — probably Amazon, because it's the biggest and most mature. Set a monthly budget you're comfortable losing, say five hundred dollars. Run a sponsored products campaign for your top three SKUs targeting high-volume keywords. Track the total cost of sale, including marketplace fees. And compare that to your other channels. You might find that the customer acquisition cost is lower, or you might not. But you won't know until you test. Luna: And if the numbers work, scale slowly. I've seen brands double down too fast and then wonder why margins shrink. Lucas: Right. Incremental testing is the smarter move. The brands that will win in 2026 are the ones that treat retail media as one tool in a diversified acquisition stack, not the whole toolbox. Luna: One last thing — attribution. How do you trust the numbers from these retail media networks when they're reporting their own performance? Lucas: That's the billion-dollar question. The platforms have every incentive to overstate performance. So savvy brands use third-party measurement tools like Measured or Rockerbox to get an independent view. Or they run controlled experiments — like turning off ads for two weeks and seeing if organic sales change. That gives you the true incrementality. Luna: Incrementality testing sounds like the kind of thing most small DTC brands don't have the resources to do. Lucas: It's not cheap. But even a basic version — compare a period with ads to a period without, while controlling for seasonality — can give you a rough estimate. I'd rather have a rough truth from a simple test than a precise lie from a platform dashboard. Luna: Fair. Alright, I think we've given listeners a good framework. Let's leave them with a concrete takeaway. Lucas: I'd say: if you're a DTC brand doing over one million in revenue and you're not testing at least one retail media platform, you're likely leaving money on the table. But don't let the ease of spending on Amazon or Walmart stop you from building a direct relationship with your customer. That's the hedge against the platform taking too much of your margin. Luna: Good place to land. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening. We'll be back next week with another deep dive into the DTC playbook.