COMPLIANCE IS KING: MANDATES DRIVE RETAIL

Venture Development: The global market for RFID systems in the retail CPG vertical reached an estimated $161 million in 2005, with hardware accounting for approximately 41%. VDC anticipates a compounded annual growth rate (CAGR) of nearly 57% over the next five years, with revenue shipments exceeding $1.5 billion in 2010.

During 2005, many RFID suppliers test pilots, revamped educational programs, strengthened their distribution networks, and took other steps to raise RFID awareness and adoption. Much of the activity has been solely compliance driven, with users focused on meeting mandates (with varying degrees of deployment).

According the suppliers and users, compliance mandates are what drove adoption and growth in 2005 - though not to the levels many anticipated. With live deployments occurring in 2005, there is no question that a milestone has been achieved. Nonetheless 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 stellar at the beginning of 2005, improving 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.

2005-2006 RFID Business Planning Service.

Publ 20060203