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Item-level tagging in the grocery industry - are we there yet?

02 April 2013

Hanna Östman

4/3/13 Item-level tagging in the grocery industry - are we there yet? - RFID Arena

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Perhaps not quite yet, but we’re definitely on the way. Tags aregetting better, smaller and more durable, and as a bonus, their

prices are going down. So, what is still standing in the way ofitem-level RFID in the grocery industry?

Razor thin margins, that's what. The grocery industry simplycannot afford to add any costs to their grocery items. At least,

they cannot do it without lowering other costs, such as shrinkageand labor costs. An investment in item-level RFID would have to

present a damn good and fast ROI (return on investment) inorder to be appealing to the grocery industry. The question that

puzzles us isn't "will we get there?" but, "are we there yet?"

In this article we'll discuss the following subjects:

What is item-level RFID?

RFID in the grocery industry todayItem-level RFID versus self-scanning barcode systems

Tags and their developmentTagging at production or at the store?

Privacy issues - To kill or not to kill tags7 reasons why item-level RFID will knock out barcodes

In the next article on this subject we will discuss more practical details, such as; for what does the production, supply chain and store

personnel use item-level RFID? How are challenging product groups tagged for best reading performance? We will go through the 6

most typical item-level RFID applications used in the grocery sector and dig deeper into the concrete benefits of each application.

WHAT'S THE FUZZ ALL ABOUT?

It's not about getting the latest tech gadgets, although that is tempting too. It's about not just knowing that you bought 5000 packs of

meat, but also exactly where in the premises each one is at any given moment. How many are in the backroom? How many are on theshelf? How many are in customers' shopping carts? How many are misplaced on the wrong shelves?

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This can be done by tagging all grocery items separately creating

a personal ID for every single item. By doing so, grocery retailers

will gain cost savings from applications like; automatic

replenishment alerts to the staff, fast and accurate inventory,

flawless supply chain management, improved customer serviceand less shrinkage. Grocery retailers need to save money and increase their sales constantly in order to be competitive. All this cannot be

done with mere barcodes.

RFID IS ALREADY BIG IN GROCERY - BUT NOT ON ITEM-LEVEL

RFID has been present in the grocery sector for a while now, but only on cartons and RTIs (returnable transport items, such as pallets

and trolleys), but, with a few exceptions. Future Store, in Moscow, Russia, is a project run by Rusnano, X5 Retail Group and OJSCRTI, where a store has been piloting item-level RFID on grocery items. The project has been very successful and they hope to do a full

roll-out in a store within the end of the year 2013.

Today in the grocery industry RFID is first and foremost used for improving supply chain processes and for ensuring the "FIFO" (first in-first out) principle. The RTI industry uses RFID in their asset management for gaining transparency and seeing to that valuable transport

items are taken care of and returned to base after use.

Implementing RFID in the grocery supply chain changes many work processes. We are talking about a system where grocery items arescanned and tracked through the distribution channel, perhaps even during production, all the way to the store backroom. In some cases

the tracking continues even on the shop floor, for instance when the grocery items are stored in their transport items (e.g. fruit).

Jon Mellor at GS1 says "If you have fresh produce and you're driving your forklift into the warehouse, you want to make sure you'resending out the oldest produce first. An inventory that might take you two hours to do with barcode can literally be done in two minutes

with one person." This is possible to do with carton/RTI-level RFID as long as the grocery items are stored on the shop floor in the same

tagged transport items that they came in.

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Read more about carton and RTI tagging in our earlier articles: Not to perish so fast, Managing RTIs - Returnable Transport

Items - with RFID and The need for intelligent reusable transport items.

Grocery retailers that already have RFID on carton/RTI-level are in a good place to expand the system to item-level RFID. A big part ofthe hardware and software system is already paid for. The ROI for implementing item-level RFID when you already have an RFID

system is significantly better than when you start from scratch. On the other hand, if a grocery retailer is planning to adopt RFID on

carton/RTI level, the extra cost for adding future-proof solutions for item-level tagging is far less than redoing the system when that time

comes.

ITEM-LEVEL RFID VERSUS SELF-SCANNING BARCODE SYSTEMS

If not RFID, what would be the next thing in grocery retail? Some say self-scanning barcode systems and claim it could cumulate item-

level RFID completely. The self-scanning system involves handing out mobile devices to customers as they enter a store. The customers

can then use the mobile devices to scan barcodes and get additional information about the products and discount offers, as well as gain

access to an electronic shopping cart application. Customers scan items as they pick them. The mobile computer gathers a list of the

items that is directly used for charging at check-out - thereby, automating the check-out process.

On the other hand, we have another growing trend as well, that is NFC (near field communication). NFC allows smartphones to

establish radio communication a few centimeters from an NFC RFID tag. NFC also offers many other perks than just reading product

RFID tags, which is one of the reason why we think THIS will be the way to gain additional product information in the future. As smartphones get more and more common, customers will bring their own "reading devices" to the store. Customers can also borrow a mobile

RFID reader at the store or use a so called "smart shopping cart" that we will discuss further in the next article about this subject.

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The benefits for grocery retailers of a self-scanning barcode

system, is merely improved customer service. In order to achievethe benefits that item-level RFID would give, such as automatedwork processes and transparency, retailers would have to adopt

other measures. There is really no point in investing in severalsystems when one flexible system can do it all.

The best possible scenario, although it takes a slightly higher investment cost, would probably be a system that allows reading of bothbarcodes and UHF RFID tags. By using a mix of barcode and RFID, item-level adoption can start before all grocery product groups

are being tagged. Most grocery retailers would probably escalate by first tagging high-value items or items that are prone to beshoplifted. The mere saving in shrinkage could be enough to cover the item-level RFID costs. Gradually more and more product groupswould be RFID tagged as the tag prices go down. The benefits of an RFID check-out can be received only when all items have RFID

tags, but this too could start as a classic self-service check-out where customers can scan barcodes themselves. Flexible and future-proof solutions are a must for avoiding high technology investment costs in the long run.

THE ERA OF SUPER TAGS IS SEING DAYLIGHT

It used to be about "the tags are too big for small grocery items" or "the tags are too expensive for low-value items". Other worries

concerned the tag's inability to handle water, condensation, cold, ice, et cetera, et cetera…

Although small tags and water-proof tags existed on the market back then as well, they seldom combined the two features by being both

water-proof and small. But, thankfully, it seems this phase is over and super small water-proof tags can now be found on the market.Besides from being easy to hide, they are also suitable for products on display in freezers and refrigerators where condensation and icehave been a huge problem before.

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Tags are improving, but tag prices are dropping. The reason forthis is research and mass production. The more RFID adoptions,

the more affordable it will be to manufacture tags. Since the trendis going towards more and more RFID adoptions, we can rely onthe fact that tags prices will keep dropping. Tags that can be

incorporated in and printed directly on the product package arealready on the market and expectations are high that they will be

a big cost dropper in the future.

The price of the tag depends, of course, much on what kind of tag we are talking about. Most see passive standard EPC Gen 2 tags as

the most probable option, since they are more affordable and create less RF interference than active tags. But it is also likely thatdifferent tags will be used for different item groups, especially if the trend goes towards tagging at production.

What is a suitable tag price level for adopting item-level RFID in grocery? That is a good and difficult question, since no case is like the

other. It depends… What kinds of tags are needed? What kind of applications will they be used for? What are the costs of tagging theitems? What savings can be achieved? How much is the estimated additional sales of the tagged product? The best way to find out is todo a ROI calculation for each case.

WHO SHOULD THE TAGGER BE?

One important question that has yet not been answered is; who should tag the products and pay for the tags? Is it the grocery produceror the grocery retailer? The same discussion has been taking place in apparel retail where item-level tagging is becoming mainstream.

The likelihood is that both methods will be used, at least at first. But as RFID gets more and more widespread, the trend will probablymove towards tagging at production, as it has with barcodes. And to be honest, in the end, it's usually the consumer who pays foradditional costs. But let's not forget, the main task of item-level RFID is to improve processes and lower costs. So, eventually we are

looking at a scenario where the consumer prices actually drop as production, distribution and storage costs fall.

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PRIVACY ISSUES

One of the biggest concerns among consumers is, of course, privacy. Especially since the tags are getting smaller and easier to hide. "Willthey be spying on me?" We actually made a video about this subject that you can check out here.

There are many approaches to solve this issue, but we'll only look deeper into one in this article: killing or disabling of tags at check-out.

TO KILL OR NOT TO KILL - THAT IS THE QUESTION

The easiest way to ease the privacy concern is to apply "kill-tag" or "disable-tag" functions at check-out. There are several ways ofpreventing a tag from revealing its information:

1. "Total kill-tag" - the tag is destroyed and can no longer be used. This is a 100% fool-proof solution that eliminates allpossibilities to awake the tag and scan the content.

2. "Semi kill-tag" - the tags reading range is dropped to a few centimeters making it impossible to scan the tag from a longdistance. The information is still on the tag, but hard to get to without the consumer noticing. This doesn't completely eliminate theprivacy issue, but it is convenient when products are returned to a store or when the consumer is interested in more information

about the product after it has been purchased.3. Tag information removal - All information related to the product is erased from the tag. The tag is still active - there is just

nothing of interest on it. Sounds great, but there is a catch here. Tags have a so called TID Bank that contains information about

the tag model, the tag manufacturer and possibly a tag serial number. This information cannot be altered or erased, which makes itpossible for grocery retailers to associate the tag serial number to a product SKU in the backend-system. Again, this is convenient

when a product is returned or more information about the product is wanted after purchase, but it also means the particulargrocery retailer, that the product was purchased from, could scan the tag and know what product it is. This, regardless that theproduct information has been erased.

4. Encryption of tag - The tag is still active, but the information is behind encryption codes. This system could be effective to someextent, but as with number 2 and 3, there are ways to circumvent them.

The easiest way to make sure privacy is no longer an issue is to kill the tag completely. That is the only way to make sure the tag can't beused to invade privacy.

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Killing the tag, as well as decreasing the tag's signal range, eliminates the futuristic problem of having too many active tags moving around

in the store creating reading interference of the tags that really should be read. When RFID becomes mainstream, this might be aproblem that demands solving.

Killing tags is handy, but there is another downside - the loss of the possibility to use RFID in product life cycle management. Byallowing the tags to stay alive, post-store applications will be made possible. In a previous article, RFID a world of opportunity, we

mentioned smart refrigerators that scan the tags on the grocery items inside. It then informs the owner of expiring dates or products thatare running low. Another important post-store application is end-of-life management. We have written an article about this subject too,

A push towards recycling with RFID. By keeping the RFID tags alive on CPGs (consumer packed goods), future RFID wastemanagement systems could assure that the waste is properly disposed of.

No matter what way grocery retailers choose to go with this in the future, customer control over the system is crucial. It doesn't matterhow secure the system is if it feels like voodoo to the customers. Make it transparent, and, why not let the customer choose whathappens to the tags at check-out, e.g. with the simple push of a selection button?

7 REASONS WHY ITEM-LEVEL TAGGING WILL EVENTUALLY WIN IN THE SUPPLY CHAIN

Supply Chain Digest published an article where they stated 7 reasons why item-level RFID will be the technology solution of the

future. They are concentrating on the supply chain but I think the same benefits can be achieved on the shop floor and in the backroomas well.

1. Automated systems will always win against manual systems.2. The trend is moving towards wanting to track everything on an individual, serialized level.3. Companies will need to streamline their processes and manual barcode tasks will be seems as "non-value added tasks".4. First adopters will gain competitive advantages, causing others to follow their path.

5. Increased regulatory requirements, especially concerning food and medicaments, will mandate the use of RFID.6. In the future, growing supply chain complexity will demand more efficient solutions than barcode systems can offer.7. As RFID finds its way into smartphones and payment systems, RFID customer service will become obvious.

CONCLUSION

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Many grocery supply chains already have a working RFID system (on cartons and RTIs) that can be utilized for parts of a new item-level RFID system. The key is to make your system future-proof. And how do you do that? One way is to look into the medicalindustry and how pharmacies and blood banks are solving item-level tagging. They too struggle with liquids, cold products and metal

shelves, but still, they are moving fast forward with item-level RFID.

Back to the question, are we there yet? In 2011 James Tour, professor at Rice University said: "I think it's going to be five yearsbefore it's good and it's ubiquitous," He adds that it's very hard to make a prediction that hedges his bet: "I'd say five years. If I'm wrong,it's going to be three. Or it's going to be seven."

The truth is, nobody knows. But, one indicator that several grocery retailers mention is; when a tag's cost is under 1 cent, that's when.Personally, I think it demands one big grocery industry leader to take the first step and show the way. The rest will follow.

RELATED ARTICLES:

Not to perish so fast

Managing RTIs - Returnable Transport Items - with RFID

The need for intelligent reusable transport items

RFID a world of opportunity the ingenious use of RFID worldwide

A push towards recycling with RFID

RFID: The medical miracle

Preventing counterfeit drugs with rfid

Stowers institute unveils item-level tagging for medical showroom

SOURCES AND RECOMMENDED READING:

4/3/13 Item-level tagging in the grocery industry - are we there yet? - RFID Arena

www.rfidarena.com/2013/4/2/item-level-tagging-in-the-grocery-industry-are-we-there-yet.aspx 10/12

http://www.rfid24-7.com/article/stowers-institute-unveils-item-level-tagging-for-medical-showroom/

http://www.nordicid.com/eng/case_studies/spains_balearic_islands_blood_and_tissue_bank_fbstib/ http://www.rfid24-7.com/2013/01/28/update-russian-future-store-tagging-1-5-million-

items-a-month/http://www.wired.com/wiredscience/2010/03/rfid/http://www.scdigest.com/ONTARGET/11-07-27-3.PHP?cid=4772&ctype=contenthttp://enterpriseresilienceblog.typepad.com/enterprise_resilience_man/2011/08/who-will-win-the-tagging-wars-rfid-or-barcodes.htmlhttp://www.enterpriseefficiency.com/author.asp?section_id=1151&doc_id=239312http://www.dcs.bbk.ac.uk/~gr/pdf/roussos_v1.4.pdfhttp://www.tbd.com/articles/2011/04/why-the-grocery-store-of-the-future-never-happened-58192.htmlhttp://www.wired.com/wiredscience/2010/03/rfid/

This entry was written by Hanna Östman, posted on 02 April 2013 Bookmark the permalink. You can post a comment.

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