RFID Technology Transforming Food Retailers Like Wal-Mart

Includes: GOOG, IM
by: Research Recap

Retailers, especially grocery retailers such as Wal-Mart, are investing heavily in new technology that will simplify transactions and increase customer service. A host of gadgets, such as touch-screen information monitors, hand-held scanners, RFID tagging and fingerprint identification, are now in place at many stores across the U.S. and in Europe, according to Plunkett Research.

The biggest technology breakthrough in inventory management is RFID (radio frequency identification)—the placement of microchips in product containers, cartons and packaging, combined with the use of special sensors in warehouses or on store shelves that alert a central inventory management system as to shipment arrivals, product purchases and the need to restock inventory, communicating via wireless means. From loading docks to store shelves to cash registers to parking
lots, RFID readers have the potential to wirelessly track the movement of each and every item of inventory.

Checkout stations will be equipped with receivers that automatically calculate purchases a of an entire cart of merchandise at a time, rather than each individual item. These systems can lead to great reductions in shoplifting and the elimination of costly manual inventory counts.

Leading suppliers of RFID tags include Intermec Technologies Corp. (NYSE:IM) and Symbol Technologies, which is a unit of Motorola (MOT).

Another potential advantage of RFID is that manufacturers and distributors will be able to reduce overall inventory thanks to greater supply chain efficiency. Marks & Spencer (MKS), a major retailer in the U.K., is replacing bar codes with an RFID system, including tags for the millions of containers that hold food being shipped from suppliers to its stores. It takes a mere five seconds to receive data from 50 containers, an 85% improvement in the time it takes to scan bar codes. The savings of time as well as reduced cost of spoiled food are expected to make the system’s $3-million price tag feasible.

Wal-Mart (NYSE:WMT) is also heavily invested in this new technology. The firm requires most of its top suppliers to have RFID tags on every pallet and case coming to its distribution centers and stores. One industry estimate calculates that the coded cases and pallets will save the retail giant $407 million per year. Should RFID tags be placed on every item in every store, Wal-Mart has the potential to save immense sums yearly through full implementation of RFID systems.

Imagine using a cellphone camera to scan an RFID embedded in the packaging of a steak. The data encrypted in that code links to a web site showing pictures of the ranch from which the meat came and medical and feed records pertaining to the specific cow. Science fiction you say? Software is already on the market that enables camera-enabled phones to read barcodes. Supermarkets in Japan currently provide the technology via meat counter computers that display information relating to specific codes on each package.

The greatest advantage of RFID implementation in stores such as Wal-Mart may be reduction of out-of-stock situations. Proctor & Gamble (NYSE:PG) a major supplier to Wal-Mart and other mass merchandisers, theorizes it could increase annual sales by $1.2 billion via RFID technology by reducing incidences of out-of-stock items in stores.

In Germany, the grocer Metro AG (MEO) operates an entire store equipped with RFID, as well as several other technologies, called the Future Store (www.future-store.org). Not only is every item equipped with a tag, but a tag reader is also installed in each shelf. Customers are given touch-screen computers that also have readers, which can assist them in finding products in the store by a keyword search as well as ring up each item as it is placed in the cart. Metro recently launched the Mobile Shopping Assistant cellphone application that allows customers to use their phones instead of a store-issued touch screen. Customers can even prepare shopping lists in advance through their phones.

More details on technology use by food companies can be found in this complimentary download of excerpts from Plunkett Research’s Food Industry Almanac.