Publicis Groupe S.A. (PUB) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us at such short notice for this call. I'm Alessandra Girolami, and I'm here with Thibault Hennion, who's the Managing Director of International Operations at Epsilon. We thought it would be useful for you to have some context on the retail media joint venture we've announced this morning with Carrefour. Thibault will do a short introduction accompanied by a few slides that you probably have received by now and you'll be able then to ask your questions. So the idea is to focus on operations and strategy and finish the call about 9 a.m. CET. And you'll find, of course, all the disclaimer notices in the slide deck. Thibault, over to you.

Thank you so much, Alessandra. Welcome, everyone, and thank you so much for joining this call in this short notice. Let me start with a very brief snapshot of retail media and then I will move into the principle of the partnership that we just announced with Carrefour this morning. So why is retail media booming today and what is the key value that it is bringing both to brands and to retailers. For brands, retail media is really delivering on the promise that they have been looking for, for years, providing them direct access to customers, both in the retailer environment, would it be in-store or on their e-commerce footprint but also leveraging the retailer data to be able to talk to customers outside of the retailer premise, for example, in the publisher inventories. This is providing extremely high conversion rates among the highest ROS in the market. And this is particularly important in the current context. The totally brand safe environment because we are speaking to the retailer within the non-environment the retailer inventories. All of that is also providing transparent measurement that is backed directly by [indiscernible] transaction. And so advertisers can see the direct effect of their marketing action directly tied into sales. For retailers, retail media is providing high-margin revenue. It is an opportunity for them to accelerate their e-commerce footprint and their e-commerce sales. And from a more strategic standpoint, it offers them the opportunity to reshape the relationship with their suppliers, allowing them to have additional discussion about value and performance. It is not a coincidence if the global retail media market is now estimated around EUR 100 billion media spend, reshaping media [ artists, ] what we are seeing from various industry reports is that the retail media spend will overcome traditional TV spend in the next few years around geographies, probably as soon as 2024, 2025 in the U.S. and a bit later in other geographies. What we are seeing is that retail media is already mature in the U.S. and also to a lesser extent in the U.K., but still fragmented and largely untapped in Europe and in Latin America. And let's dive for a couple of minutes around this geographical view. It's true that outside of the U.S., there are different challenges that retailers and brands need to address together to be able to leverage the full potential of retail media. There is first a lower e-commerce penetration. And we know that retail media is directly correlated to the overall size of the e-commerce business of the largest retailers. We are speaking about fragmented geographies with different regulations, different countries, different language and all of that are creating barriers for brands to spend their media dollars. And finally, the landscape, the business, retail and landscape is diverse and relatively fragmented providing less scale when a brand would like to leverage their media spend to reach their customers and to send their overall marketing spend into the retailer environment. But still, despite those challenges, we are seeing the same growth potential for retail media in Continental Europe and in LATAM. First, retailers are having extremely strong loyalty program, where data is gathered in a fully GDPR compliant way, and this is providing extremely valuable data for a retailer to help brands within their marketing programs. We are also seeing the same trend as in the U.S. or in the U.K., and we can anticipate that retail media spend will be as large as TV spend by 2026, maybe potentially 2027 in Europe. So definitely seeing the same trend and the same dynamic disrupting the traditional media [ artists. ] And finally, when we are speaking about the total addressable market, what we are seeing in various industry reports is that the overall retail media market is anticipated at EUR 25 billion in Europe by 2026. And if we look at the directly addressable market for players like Publicis or Carrefour in Continental Europe. So outside of Amazon in the U.K., we are speaking about a directly addressable market at EUR 5 billion. There are two very interesting studies that I can only recommend you to read about the status of retail media in Europe versus the U.S., one that has been published by the IAB Europe over the last few weeks and the other one that has been published by McKinsey in July 2022. Now when it comes to Publicis Groupe and their retail media arm CitrusAd, powered by Epsilon. We are benefiting from a leadership position in retail media in the U.S. and in the U.K. We are working with the largest retailer in those geographies, and we can see every day, the recipe that has been successful in making the overall retail media market boom in those geographies. We know how to talk to brands when we are speaking on behalf of retailers to give them the necessary connectivity, the necessary scale and the necessary internal transformation to bring retail media at its full potential. And this has been one of the key drivers of the partnership that we are announcing today with Carrefour. We will be creating a joint venture at 49% for Publicis Groupe and 51% for Carrefour, where we will join forces and bring our combined strength to address the booming retail media market and accelerate its development in Continental Europe and in Europe. On our side, within Publicis Groupe; we have announced the industry-first on-site off-site retail media platform at the beginning of the summer, CitrusAd by Epsilon. We have seen very significant momentum over the last few weeks, and you might have seen the various release of retailers adopting our technologies across the world. On top of that, this platform is fueled by an industry-leading identity solution the one provided by Epsilon, Epsilon CORE ID. Overall, it's more than 300 million CORE ID globally and more than 80 million in Europe that will be able to fuel the platform and to continue to expand, thanks to all of the retailer data that we will be able to leverage, thanks to our retail media inventories. And finally, we are providing industry-leading clean room technology that are allowing retailers and brands to share their first-party data in a totally compliant way to be able to build more efficient marketing plans and marketing strategies. On the Carrefour side, they have developed their retail media activity extremely early, and they have taken a leadership position in Continental Europe and in LATAM in this field. With Carrefour, they are bringing their first-party data above 80 million household customer, all of their transaction data and the premium inventories to allow us together to bring the retail media market in those geographies to the next level. What we would like to deliver is to bring to retailers the same level of scale and the same level of connectivity to bring the retail media market as close as possible to its scale in the U.S. or in the U.K. We knew that to be able to deliver so we need disruptive action to be able to bring the market together and really deliver scale to those players that are suffering from this fragmented landscape today. So to summarize our presentation, we will be bringing together two unparallel assets. The scale of Carrefour in Continental Europe, Brazil and Argentina with the Publicis Groupe leadership position in the most retail media markets, essentially the U.S. and the U.K. Together, we will be creating a joint venture that will be covering the entire retail media value chain, technology for inventory creation and data sharing for merchants. This is on the retailer side as well as commercialization of media and data solutions for brands. This is on the advertiser side. We will have -- thanks to our unique technology, CitrusAd powered by Epsilon, an integrated tech stack that will bring together the onsite, the offsite and the [indiscernible] technology to deliver a single data asset and allow retailers to leverage their retail media potential at full potential. And finally, we have the ambition to rally multiple retailers in the midterm to create the necessary scale effect and connectivity, creating a network of inventories that will ease the media spend for brand. This is something that we are already delivering in the U.S. today and that we would like to replicate with the same success in those geographies that are more fragmented today. Alessandra, I'm done with the presentation, and I am now available to take all of the questions.

Operator, we can now launch the questions.

[Operator Instructions] The first question is from Tom Singlehurst with Citi.

Tom here from Citi. I apologize if I missed the very beginning of the call, so I do apologize for that in case you covered this, but two questions. The first one, high level for the retail media opportunity. Can you talk about how additive it is? I mean it's obviously a very fast -- a very big market, a very fast-growing one. But is this spend that historically was not addressed by, in particular, publicities and the ad agencies more broadly? That's the first question. And then the second question, very briefly, just to check whether the creation of the JV involves any significant capital outlay for the group. Those are my two questions. And apologies if you mentioned this at the beginning of the call.

Tom, thanks for your questions. I'll start with the second one. So basically, in terms of what Publicis brings to the JV. So Publicis brings the exclusivity of the technology of CitrusAD and the CORE ID and the clean room to the JV commercialized in Carrefour geographies. And on top of that, Publicis will also invest around EUR 25 million in the JV in order to achieve a balanced shareholding with Carrefour.

And on my side, I will take the first 1 about the retail media opportunity, whether it's additive or whether it's replacing some more traditional spend. What we are seeing is that when you look at the potential growth of retail media you have between 1/3 and 2/3 that is net new investment that is not coming from an old channel replaced now by retail media. And there are relatively good strategic reasons for that. Historically, retail media was really a performance media tool, where brands were spending in the channel that is the closest to the purchasing action. And now more and more brands are using it also to deliver on their brand building tasks and their overall awareness duties, particularly on the publisher environment. So it's true that you have a portion of retail media spend that are replacing essentially traditional trade spend, but more and more, as we are seeing with the overall digital media spend, retail media is also creating its own channel and its own additional value because the potential of retail media is largely untapped today. It's still at a majority, Performance Media tool. But we are seeing more and more awareness and brand building channel that are used more and more within the retailer website or on the publisher website but in both cases, backed by retailer transaction when it comes to measurement. And this ability to tie every marketing action into sales performance or into direct transaction is something relatively new that advertisers really like and really love because it's providing justification for their marketing spend and the ability to demonstrate that every single marketing dollar is used for the right purposes.

The next question is from Adrien de Saint Hilaire with Bank of America.

A couple of questions, please. Thibault, I think you mentioned before at the VivaTech conference that CitrusAd was growing above 100%. Do you mind reminding us what the revenue base for CitrusAd is right now? And secondly, Alessandra, you mentioned exclusivity of technology. So just to be clear, does that mean that CitrusAd won't be able to serve the retail media networks of other e-commerce platforms going forward? Or did I misunderstand that point?

I'll take the first question, and I will let you the second, Alessandra. So we haven't disclosed the basis of the revenue for Citrus in the past. Now you have some indication about the transaction price last year for the acquisition. And I guess you have in mind the magnitude of the multiple for such an acquisition. So you can probably build the top line revenue or at least some bracket for the top line revenue. And it's true that Citrus is experiencing a very significant growth this year, 3-digit growth above 100%. And we are seeing fantastic momentum with our platform we've converted one of the largest grocery retailer in the U.S. a couple of weeks ago with Ahold. We are now announcing the conversion of Carrefour, and this is just the beginning. So we are definitely seeing a very significant momentum with our retail media activity and our unified platform, CitrusAd and Publicis. Alessandra on to the next.

Sure. The way it works, Adrien, is that CitrusAd and Epsilon will be the exclusive tech and product provider of the JV hence generating net revenue for Publicis from January 2024 with Carrefour and as soon as the JV is created with other retailers. And in short, the way you have to see it is that the JV will be one of the largest clients of Epsilon and Citrus outside of the U.S. I hope that's clear.

The JV will play as a retailer of the citrus and Epsilon technology in Continental Europe and in LATAM.

The next question is from Julien Roch with Barclays.

The first one is retail media. You put a few numbers in the press release, EUR 100 billion globally, EUR 25 billion continue -- in Continental Europe and EUR 5 billion directly addressable. Do you have a sense of how much would it be in Carrefour geographies? And then that's the first question. The second one is on the financials. Will the JV -- because you only own 49%, will it be consolidated or only at associates? And how will the JV generate revenue? Will you get a percentage of the spend on Carrefour platform? Or is it like a fixed tech fee or a viable tech fee? That's my second question. And then the third one, coming back on the exclusivity question. So the JV is the exclusive tech provider, but does that mean that in Carrefour geographies, so France and LATAM, CitrusAd cannot sell that technology to other people? So what do you mean by exclusivity, just to be 100% clear. These are my three questions.

So actually, I'll try to take the three questions, and Alessandra, if you want to add anything, please feel free. So on the first question on the addressable market. So if you look at the latest IAB Europe study, the total retail media market in Europe, including the U.K. is expected to reach EUR 25 billion by 2026. This includes the U.K. and Amazon and through that today, Amazon is the largest retail media player in those geographies. I think in the same study, they are computing that Amazon is grabbing 80% of the retail media market in this geography today. And by the way, this is a key driver for this initiative because what we are telling [ as ] our retailer is that time to join forces to take their fair share of the retail media market and overcome the fragmentation that hold them back a bit in the overall retail media activity. In Carrefour geographies and actually, the scope that we are highlighting is a bit larger than just Carrefour geographies. It's really Continental Europe, plus Brazil, plus Argentina. What we are anticipating is that the addressable market for these territories, which will be the territories of the JV is the directly addressable market is EUR 5 billion by 2026. And basically, this is the share that is expected to be generated by all of the retailers outside of Amazon. And so this is for us the right comparison basis when we are making our assumption because this is the market that we would like to conquer. On the second question and the financial flow and the fee structure. The JV will really play as the reseller of our technology, CitrusAd and Publicis Epsilon. So if the JV is converting a specific retailer, we will act as the technological provider of the JV and ultimately, the retailer that has been converted. And this is the way that CitrusAd and Epsilon will be compensated or rewarded work. So it's -- from a pure Epsilon and CitrusAd point of view, you can consider the JV as one client that will bring multiple retailers with the normal fee structure or the traditional fee structure that we are having with the clients. The structure in this sense is relatively similar to what we did with Sapient and Tech X at the beginning of the year, I guess?

Yes, in 2021.

In the APAC market. And I hope this is also answering your third question. But basically, what this means is that now the JV will be the selling arm or the commercial arm for our technology in Continental Europe. So basically European union outside of the U.K. plus Brazil and plus LATAM, the idea is to rally multiple retailers to create a network of inventories that will bring the necessary scale and connectivities to retailers. This is, by the way, this kind of network of inventory, this is what we are delivering already in the U.S. with some retailers, and that has proved to be extremely successful to bring them the right bargaining power, scale, connectivity, processes and consistency when they are talking to brands. And overall, this is accelerating extremely significantly their retail media journey. Does that answer all of your questions, Julien?

Next question is from Lina Ghayor with BNP Paribas.

Alessandra and Thibault, I hope you can hear me well. I have three on my side. The first one is will you be able to collect the data from those Europe and Latin American markets to fuel your CORE ID in those regions given that you made an acquisition recently there, I think, with [indiscernible]. The second one is just to come back on Julien's point around the platform. So you say you wish to attract more retailers. So can you just talk about your ambitions here from time line? And also, can you confirm you intend to -- do not create one platform for its retailers but that you intend to scale this platform and potentially bringing on more retailers? And lastly, if yes, could you just compare a bit to what you are offering with partially [indiscernible] right now?

Okay. So on the first one, on the way we are onboarding data and the way we are leveraging data for our retailer clients. So the Epsilon and the CitrusAd, powered by Epsilon technology will be and is the technology of choice of the basis when we are working for our retailors. We will be going through the normal onboarding process for the data to fuel its full retail media activity and to bring its retail media activity at full potential. So this is exactly what we presented in VivaTech a couple of months ago when we are able to learn from the existing customer base from a retailer to make its overall retail media activity more powerful, would it be within the retailer premise, its e-commerce website or within the publisher premise, thanks to our off-site offering. So the traditional way to onboard data from Epsilon will be the normal technological choice of because our technology will be the technology of choice of JVs. On your second question on whether it's one platform or multiple platform. It's actually a choice of each of our clients, either to have a specific instance within the platform where brands can connect directly and spend their marketing dollars on this retailer directly or some retailers are also choosing to join forces and to create a network of inventories. So the platform is exactly the same. The interface is exactly the same, except that when you are a brand, you have the choice once you have entered the platform to spend your marketing dollars into a network of retailers with consolidated reporting, consolidating performance and the ability to get immediate scale when you are considering your retail media investments. This is, by the way, what we are doing already in the U.S. There is a specific inventory network that is called [ grocery one. ] We issued a press release about it I guess it was June that is explaining exactly the principle. And the idea is really for multiple retailers to join forces to get immediate scale, connectivity and consistency in their retail media activities. And overall, it's demonstrating a very significant acceleration in the brand spend under on this price. And finally, in terms of comparison with the competition with this JV, our ambition is really to create a full media player that is delivering first technology to be able to equip retailers and make sure that they can benefit from the best technology. But also, and this is thanks to the CitrusAd expertise, but also the Carrefour expertise from their Carrefour journey, the right consulting mechanism to help retailers make the necessary internal transformation and internal changes to leverage the full potential of their retail activity to articulate the best way possible to talk to brands and ultimately, to sell the inventories in the best possible way. And this is something that Citrus was not doing in Europe and in LATAM today, and this is a net new addition into the overall value proposition providing the ability on top of the technology to provide advising services or consulting services and the sales activity of the inventories to come with a full media offering with media inventories with data providing an on-the-shelf offering to advertisers.

Maybe I would just complement on the time line question, Lina. So the joint venture is expected to be finalized in the first half of 2023. And Carrefour will implement CitrusAd and Epsilon products and solutions from 2024.

The next question is from Jérôme Bodin with ODDO.

Just a quick two follow-up on my side. The first one, could you maybe give us a bit more details on the governance, which is -- it's maybe a bit too early, but who is going to be in charge as CEO and Board between yourself and Carrefour? That's the first one. And the second one, so Thibault, you mentioned the fact that you want to work with other retailers. So just to try to understand how do you plan to convince them? And could you maybe open the capital structure to new partners.

I'll take the second question, and then I will let Alessandra answer the first one. So yes, the ambition is definitely to rally multiple retailers either as a clients or as shareholder. The idea is really to work on an open environment. And the value proposition that we are pushing to retailers is the ability to provide to them scale, connectivity and consistency when they are talking to brands to really bring together a retail media ecosystem that is fostering the brand spend. This is really what is lacking in Europe today. This is also explaining why Amazon is getting such a significant market share, about 80%, today. And so our ambition is to tell retailers that they need to join forces if they want to take their fair share of retail media and accelerate the development of the market for this market to come as close as possible to what we are seeing in the U.S. or to a lesser extent, in the U.K. So this is really the value proposition that we will bring together to other retailers with an open environment mindset, both in terms of commercial structure, but also in terms of shareholding structure. Alessandra?

So on the management of the JV, the CEO and the management team will be appointed later once the company effectively created. And similarly, for the governance and for the shareholding, the Board and say, will be structured to be aligned with services and Carrefour equity stake. So it's a bit early at this point in time to give you more details on that.

And we are expecting to create formerly the JV in the first half of 2023. And of course, there will be additional announcement to come with the main management team, its first commercial success, et cetera, et cetera coming at the same time.

The next question is from Sarah Simon with Berenberg.

I've got a few questions. First one, can you just remind us, I know you have a Publicis Sapient deal with Carrefour for the e-commerce. But are you responsible for the media buying as well. So is this kind of a logical extension of that? Second question was, it's kind of interesting that you've made Carrefour, the majority shareholder. Do you not think that having a retailer being theoretically in control of the JV might put off competing retailers from joining the network. I mean I take your point about retailers joining forces, but retailers are all fighting tooth and nail as well. And then sorry, I've got four actually. I missed the answer on how you're going to account for this. Is this just going to go into the associate line, i.e., is the CitrusAd revenue in Europe and Lat Am now going to go sort of below the line? And then the fourth one was, do you have any trade marketing activities now in terms of recognizing revenues from Unilever paying Ahold or Albertsons for the best spot on particular shelves in the supermarkets?

Sarah, I'll take the question on the remuneration. In fact, so basically, you have to consider that there are two things, two flows, if I may. So the first one is the revenue that CitrusAd and Epsilon will generate by being the exclusive tech and product provided to the JV. So we're going to get revenue out of that. So this will go in our net revenue line. As the joint venture is our client or will be our clients. And you're right, I said secondly, because we own a 49% stake, Publicis will also be receiving a share of profit in terms of associate.

And then if that JV signed other retailers that would be booked in your associate income.

No, at all. Yes. But I would say that the primary source of revenue will be really the revenue that is generated as Epsilon and CitrusAd will provide the technology to the JV. So it's another retailor side to the JV, then we're going to be providing the technology and hence receiving the tech.

The JV is really acting as a reseller of our tech in those geographies. So as working for a normal reseller. Every time they are selling something, we are getting the majority of the revenue for it because we are delivering the work. But the end relationship is at the JV. And I'll try to answer your three other questions. So on the first one, on the various duties and piece of work that Publicis is today delivering with Carrefour. So we are not their agency of record for their media activity. And it's true that Sapient has performed very significant transformation work in the past particularly in reshaping their e-commerce activity and redesigning their website. I guess this partnership was announced in 2018 and the new overall e-commerce environment has been successfully launched, I guess it was around 2020. I'm not in all of the details of this partnership between Sapient and Carrefour because on this one, it's really geared towards retail media and our ad tech platform, CitrusAd powered by Epsilon, but you are totally right that in the past, then has held a significant strategic projects for Carrefour. On your second question on having a retailer as a majority stake. I guess there is one piece to keep in mind is the fact that Carrefour launched their retail media activity quite early and has been extremely successful in this field. They are one of the most advanced retailers in retail media, in Continental Europe as well as in LATAM. And we -- our ambition is to bring other retailers through the same journey to accelerate their path to revenue and to bring them the same success, learning from the Carrefour experience. So at the beginning, we thought that was the right shareholding structure. And as I mentioned previously, this shareholding structure is also expected to evolve in the future as the potentially as well [indiscernible] will join to really bring the successful ecosystem that is needed on retail media in those geographies. And finally, on your question on trade marketing. So actually, the trade marketing landscape is an extremely interesting landscape that is very, very fragmented. It's true in the U.S. but it's also true in Europe or in other geographies because you -- it's a little different from a traditional media AOR where everything is centralized at HQ level, the trade marketing is really managed at sometimes regional level, sometimes even at a store level for brands. And so it's having a consolidated view of all of the trade marketing activity for specific advertiser is something quite challenging. So we are, by definition, holding some of these budgets Some others are managed in a different way, but it's difficult to provide a totally consolidated landscape and view of the trade marketing budget because this trade activity as a whole is really evolving extremely fast. Some of it will remain at a store or at a regional level. Some of it will evolve in a more mature or innovative retail media spend. This is, by the way, also what we are seeing and what fueling the retail media growth today, but the trade marketing activity as a whole is -- there are some very different tools that is applying to the trade marketing activities and on traditional media or even retail media.

So -- but if it's very regional and fragmented like that, I guess, Publicis as a group doesn't do very much in the field of trade marketing today.

We are at very regional level, but it's, in general, it really depends advertiser -- in general not managed through lab, HQ led [indiscernible] as the normal media or digital or even retail media spend.

I think we are going to take one last question.

The last question is from Christophe Cherblanc with Societe General.

Just wanted to come back on the Creative question. I'm not sure I got it clearly. My understanding was that Carrefour had a 3-year agreement with Creative. So does it mean that they will drop it was a tech provider as of next year. And the same question applies to LiveRamp, which is also a tech partner for Carrefour. And beyond Creative what do you see as a potential competition for the EUR 5 billion of addressable market you are mentioning you because I can see your joint venture. I can see Creative. I think Microsoft as a small business. But beyond that, what will be the next competition? And would you expect other agencies try to build offer in the space?

So to answer your first question. So yes, CitrusAd, powered by Epsilon will become the technology of choice of Carrefour, but also of the JV as soon as the first of January. And so we will be powering all of the Carrefour inventories from this date. When it comes to the clean room technology, Epsilon also hold some clean room technology, but this will come at a later stage because they have an existing agreement with LiveRamp on that is quite successful. On your second question about the addressable market and the potential competition. So what we are seeing in this geography is that actually the first barrier or the first competitor is the fragmentation of the market. It's not directly a real competitor, but this is really what is holding back retail media in those geographies. And this is what has triggered this initiative to accelerate the development of retail media in those territories. Another way to say it is that the main competitor or the player that is grabbing the most significant share of the market today is Amazon, and that's for sure, a fact, the IAB study that I mentioned in the past is clearly outlining that between 80% and 85% of the market is getting to Amazon today. And this is why we think it's time for retailers to act. And finally, from a more strategic perspective, there is also -- and it's always the case in the U.S. or even in the U.K. There is also the ability for retailers to build their own tech stack, so to bring something on premise that is not relying on a leading ad tech player. This is something that we are seeing with some players in the U.S. Some retailers in Europe have tried to do so. It will probably be more difficult for them looking at the fragmentation of the market and their difficulty to address brands directly because brands are looking for scale, for connectivity and potentially even more importantly, for consistency across all of their retail media spend. But by definition, and it's true in retail media as it's true in media or in digital media in housing or the ability for players to build their own stack is always a potential competition.

I think it's time to close the call. Thank you to everyone for having been present with us, especially as such short notice and of course, talk to you soon. Thank you. Bye-bye.

Thank you, everyone. Bye-bye.