RFID...still the key driver

Filed in archive Market Overview on February 12, 2006

The global market for RFID systems in the retail CPG vertical reached an estimated US$161 million in 2005, with hardware accounting for approximately 41% of that value, according to Venture Development Corporation's new 'Retail CPG Vertical Market' report from its annual RFID Business Planning Service.

VDC anticipates a compounded annual growth rate (CAGR) of nearly 57% over the next five years, with revenue shipments exceeding US$1.5 billion in 2010. eehsani This article is copyright 2006 UsingRFID.com.

Global Shipments of UHF EPC RFID Systems to the Retail CPG Vertical Segmented by Product Category (Millions of Dollars) 2005 Hardware: 66.1 Software: 14.5 Services: 80.3 2010 Hardware: 606.9 Software: 227.3 Services: 681.0

During 2005, many RFID suppliers tested pilot schemes and revamped their educational programmes, strengthened their distribution networks, and took other steps to raise RFID awareness and adoption. But much of this activity was solely compliance driven, with users remaining focused on meeting mandates through varying degrees of deployment. According to both suppliers and end users, compliance mandates were what drove adoption and growth in 2005 - though not to the levels many anticipated.


Retail limiting factors

According to VDC, with so many live deployments occurring in 2005, there is no question that a milestone has been achieved. But the number of tagged retail CPG pallet shipments remains low (approximately less than 1% of total shipments). VDC argues that stronger retail CPG shipments were restricted in 2005 due to several key factors:

A large percentage of mandated suppliers limited their deployments, meeting minimal mandate requirements (predominantly through manual slap-and-ship installations);

Technology performance (i.e. read rate accuracy, dense reader mode operation, etc.) was not brilliant at the beginning of 2005 but improved as the year progressed - most notably through the introduction of higher-performing Gen. 2-compliant products and firmware upgrades;

The ISO-18000-6C standards approval process has been more protracted than expected, delaying Gen. 2 product development and user adoption (particularly outside North America);

Most of the companies adopting RFID because of mandates initially find it challenging to measure an internal return on investment (ROI). ROI is only realised when real-time RFID information becomes part of the enterprise's underlying business processes - a level the majority of purely compliance-based adopters have not yet reached.

According Michael J. Liard, director of VDC's RFID Practice, "While we feel the market potential for RFID solutions is immense, we argue that the market remains very much a work-in-progress, and 2006 will prove to be another interesting year."

Source: Using RFID