With "slap and ship" dominating to date, market for radio frequency identification technologies "still a work in progress," VDC argues
Natick, MA — February 8, 2006 — Retailer mandates are driving investments in radio frequency identification (RFID) systems in the retail consumer packaged goods (CPG) vertical, but spending growth rates are expected to hit nearly 60 percent annually for the next five years, according to a recent report from Venture Development Corporation.
In the recently released Retail CPG Vertical Market volume of its annual RFID Business Planning Service, VDC estimates that the global market for RFID systems in the retail CPG vertical reached $161 million in 2005, with hardware accounting for approximately 41 percent.
Growth Curve
VDC anticipates a compounded annual growth rate (CAGR) of nearly 57 percent over the next five years, with revenue shipments exceeding $1.5 billion in 2010. Segmented by product category, VDC charted the following breakout of global shipments of UHF EPC RFID systems to the retail CPG vertical in 2005 versus 2010 (in millions of dollars)
Tagged Shipments Still Low
According the suppliers and users, compliance mandates are what drove adoption and growth in 2005, though not to the levels many anticipated, according to VDC. "With live deployments occurring in 2005, there is no question that a milestone has been achieved," the analyst firm wrote. "Nonetheless the number of tagged retail CPG pallet shipments remains low (approximately less than 1 percent of total shipments)."
VDC argues that stronger retail CPG shipments were restricted in 2005 due to several key factors:
According Michael J. Liard, director of VDC's RFID practice: "While we feel the market potential for RFID solutions is immense, we argue the market remains very much a work-in-process. 2006 will prove to be another interesting year."
The retail CPG supply chain discussed here is currently under investigation by VDC as part of its 2005-2006 RFID Business Planning Service. To view the program proposal, go to: http://www.vdc-corp.com/autoid/annual/05/br05-21.html
Additional Articles of Interest
— RFID technology has the potential to change the way supply chains are managed, but in order to be effective businesses need to take a holistic look at the deployment. Read more in the SDCExec.com article "Time for RFID: Applying RFID in the Supply Chain."
— For a contrary view of the future of the RFID market, see the article "The O'RFID Factor: A 'No Spin' Look at Where Radio Frequency Identification Is Headed," in the October/November 2004 issue of Supply & Demand Chain Executive.
— For more information on trends relating to radio frequency identification (RFID), follow this link for an extensive listing of SDCExec.com articles, featuring the latest research findings on the RFID, including adoption, return on investment and barriers to implementation.
Natick, MA — February 8, 2006 — Retailer mandates are driving investments in radio frequency identification (RFID) systems in the retail consumer packaged goods (CPG) vertical, but spending growth rates are expected to hit nearly 60 percent annually for the next five years, according to a recent report from Venture Development Corporation.
In the recently released Retail CPG Vertical Market volume of its annual RFID Business Planning Service, VDC estimates that the global market for RFID systems in the retail CPG vertical reached $161 million in 2005, with hardware accounting for approximately 41 percent.
Growth Curve
VDC anticipates a compounded annual growth rate (CAGR) of nearly 57 percent over the next five years, with revenue shipments exceeding $1.5 billion in 2010. Segmented by product category, VDC charted the following breakout of global shipments of UHF EPC RFID systems to the retail CPG vertical in 2005 versus 2010 (in millions of dollars)
- 2005
Hardware: 66.1
Software: 14.5
Services: 80.3 - 2010
Hardware: 606.9
Software: 227.3
Services: 681.0
Tagged Shipments Still Low
According the suppliers and users, compliance mandates are what drove adoption and growth in 2005, though not to the levels many anticipated, according to VDC. "With live deployments occurring in 2005, there is no question that a milestone has been achieved," the analyst firm wrote. "Nonetheless the number of tagged retail CPG pallet shipments remains low (approximately less than 1 percent 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 stellar at the beginning of 2005, but improved as the year progressed — most notably through the introduction of higher-performing Gen2-compliant products and firmware upgrades;
- The ISO-18000-6C standards approval process has been more protracted than expected, delaying Gen2 product development and user adoption (particularly outside North America); and,
- Most of the companies adopting RFID because of mandates initially find it challenging to measure an internal return on investment (ROI). ROI is realized 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 the market remains very much a work-in-process. 2006 will prove to be another interesting year."
The retail CPG supply chain discussed here is currently under investigation by VDC as part of its 2005-2006 RFID Business Planning Service. To view the program proposal, go to: http://www.vdc-corp.com/autoid/annual/05/br05-21.html
Additional Articles of Interest
— RFID technology has the potential to change the way supply chains are managed, but in order to be effective businesses need to take a holistic look at the deployment. Read more in the SDCExec.com article "Time for RFID: Applying RFID in the Supply Chain."
— For a contrary view of the future of the RFID market, see the article "The O'RFID Factor: A 'No Spin' Look at Where Radio Frequency Identification Is Headed," in the October/November 2004 issue of Supply & Demand Chain Executive.
— For more information on trends relating to radio frequency identification (RFID), follow this link for an extensive listing of SDCExec.com articles, featuring the latest research findings on the RFID, including adoption, return on investment and barriers to implementation.
- More research from VDC.
