Retail Compliance Update: Wal-Mart, Albertsons, and Metro Continue to Grow Their RFID Initiatives

By Eric Van Osten and Ron Romanik

Two years ago, the word "mandate" sent shock waves through the RFID industry. It was both a scary word for CPG companies and a promising word for RFID technology suppliers. Even though Wal-Mart continues to ask more and more companies to comply with their program, the fear of the unknown has been supplanted by a new reality of attainable RFID objectives.

But Wal-Mart is not the only entity driving the industry. Albertsons, Target, and the Department of the Defense, among others, have also been asking more and more companies to comply. In Europe, Metro AG has been leading the RFID charge. Metro is Germany's largest retailer and the fifth largest retailer in the world, operating more than 2,300 retail stores in 28 countries. It was reported in mid-2004 that by this time, Metro planned to have 300 companies' suppliers supplying RFID-tagged pallets and cases to its distribution centers.

That prediction turned out to be a little ambitious. Since November of 2004, Metro Group has gradually introduced RFID technology throughout the entire supply chain—from the producer to the back store. At present, 40 of Metro's suppliers are working with RFID on the pallet level. Metro is still committed to getting 100 suppliers, eight warehouses, and 250 stores and outlets of the Metro Group's sales divisions to participate as soon as practical.

In the U.S., Albertsons is similar in stature to Metro, with 2,300 stores in 31 states, and annual sales of nearly $40 billion. Judith Watson, Albertsons' Group Vice President, Strategic Procurement and Replenishment, sees steady progress with their RFID program, initiated in April of last year with the hopes of having 100 suppliers participating by year's end.

"We are pleased with our roll-out so far," says Watson. "We currently have 100 suppliers who are live on data sync, which is a critical step in the RFID on-boarding process." Albertsons announced that they are expanding their RFID program in their Acme division, and are equipping their Lancaster, PA, distribution center to track RFID-tagged shipments.

Simon Langford, Manager of Wal-Mart Stores Inc.'s Global RFID Strategy arm in Bentonville, AK, reports, "Our implementation is right on track." By the end of January 2006, Langford's office still expects to have 300+ suppliers shipping tagged cases and pallets to Wal-Mart's facilities in the Dallas/Fort Worth area. These suppliers are not required to tag all of their pallets, just a percentage based on the value and volume of their goods.

The Wal-Mart initiative is expanding in several ways. Langford reports that the Wal-Mart top-100 suppliers that complied a year ago will be tagging more and more SKUs in their product lines through this year. The next Wal-Mart milestone is to have RFID systems in place in 600 stores and 12 distribution centers. For increased functionality, Wal-Mart is also expanding their distribution center implementations to include different formats and operations.

What's ahead in 2006

With no specific plan for international supplier mandates yet formulated as of today, Wal-Mart is currently focusing on their implementation initiatives in the Dallas area. Wal-Mart is fully prepared to read Gen 2 tags, but they have not yet mandated or given a timeline when suppliers need to transition to Gen 2 tags. Langford's office predicts that as more retailers consider and adopt RFID as another avenue to provide better customer service or internal benefit, there will be an even greater impact to the price of tags and readers. "However, we are primarily focusing on our store process changes to really drive the collaborative benefits," Langford reports.

Albertsons' 2006 goal is to expand their RFID program even further in order to provide visibility into store execution opportunities, and to stay firmly ahead of their competition on supply chain optimization. "As we focus on the Acme marketplace, our goal is to work collaboratively with our suppliers to help as many as possible get on board and realize the benefits of RFID as soon as possible," says Watson. "We currently have a strong base of suppliers who are ready to begin shipping RFID-tagged items to Acme, and we are looking forward to working with them to ensure that our program will drive mutual benefits."

Christian Maas, speaking from Metro's Corporate Communications office, reports, "The implementation of the RFID technology is running successfully. A slight delay occurred only regarding the transition to EPC Class 1/Gen 2, since the Gen 2 equipment is a little late on the European markets."

Metro believes that early in 2006, the EPC Class 1/Gen 2 standard will be more accepted and transponders will be available in sufficient quantity to complete the transition to Gen 2 this year. Metro has already performed successful tests of Gen 2 in their Future Store near Dˆºsseldorf. During 2006, Metro also hopes to have more than 100 suppliers participating in their RFID program and to advance RFID implementation on the carton level.

Helping to see the ROI

In implementing Metro's program, they have found the benefit of developing individual RFID solutions catered to their suppliers' needs and the best strategy for them to see real advantages. The METRO Group offers help to suppliers by producing guidelines that explain the necessary steps regarding the implementation of RFID.

The Metro Group RFID Innovation Center and a Web site "special members" section serve as information platforms for suppliers. In addition, they organize an annual supplier congress dealing with the implementation of RFID and publish an RFID Newsletter several times a year. Supplier meetings with the staff of the Metro Group also offer opportunities for inquiries and individual support.

"The reactions of our suppliers using RFID are predominantly positive," reports Metro's Maas. "The innovative technology helps them to increase the efficiency of their processes and to bring more transparency in the supply chain. Moreover, RFID has the potential to be a solid protection against counterfeiting in the future."

Albertsons began their rapid RFID compliance program by working with a core group of top suppliers, and then added, in waves, subsequent groups of suppliers. "We meet directly with all participating suppliers as they come on board to discuss our plans for RFID," says Albertsons' Watson. "We are constantly soliciting their feedback in order to ensure that the program delivers mutual benefits. Our suppliers are very supportive of the collaborative approach that we are taking on this project, and many of them have told us that our approach is refreshing."

Albertsons also tries to work one-on-one to solve tag read-performance issues with metal packages and liquid products, as does Wal-Mart. Langford's office claims that Wal-Mart has always been able to find a tag that, when placed in the proper location, could deliver the read performance needed. Metro has found success with SATO's Flag Tag, which they helped develop in cooperation with SATO, UPM Raflatac, and Nestlé.

Future of item-level and privacy

Wal-Mart has been testing item-level tagging almost from the beginning of their RFID initiatives. Currently, tags are found on individual "Pack Size 1" items, which are shipped as a case size of one but appear as single items on the shelf to consumers. Pack Size 1 items include TVs, printers, PCs, and bicycles, among other items. Wal-Mart expects that more customer selling units will be tagged over the coming years, and distinct categories will be more prone to growth.

Wal-Mart points to the FDA to learn how item-level tagging might progress. The FDA is endorsing RFID for pharmaceutical applications in particular, to reduce drug tampering and counterfeiting, and Wal-Mart has a trial program in motion. Per EPCglobal guidelines, these items are easily identified by the EPC symbol on the tag.

"The most important thing to know about RFID tags being used at Wal-Mart is that they will not be used to collect additional data about consumers or their purchases," emphasizes Langford. "The tags will contain a product code and a serial number unique to the tagged item. It will not contain any information about a consumer. We have seen a very thoughtful approach to the new technology by consumers during our pilot and now through the live implementation." Wal-Mart believes consumers understand RFID's applications and potential and seem ready to embrace it for companies that comply with EPCglobal guidelines and the company's own privacy policies.

Metro also appreciates the potential advantages of item-level tagging, but they do not expect RFID chips on small individual packages before 2015. They believe that RFID technology and tags must first become much less expensive, and the technology still has much room to improve in terms of reliability and standardization.

As for privacy issues, the Metro Group is a member of EPCglobal and very cognizant of the public's reservations about privacy issues. Metro is the world's first trade company to develop a De-Activator. With this device, the customer can deactivate RFID tags on products. The De-Activator device has been in use at the exit of their Future Store in Rheinberg, where item-level tagging is tested on four selected articles. Furthermore, Metro indicates the use of RFID in stores with signs, and offers background information on RFID in newsletters, brochures, and on the Internet.

Albertsons assures the public that they will not use RFID to track individual customer purchases. "Our efforts are focused on improving the flow of product to the shelf, thereby enhancing our customer's experiences inside the store," Albertson's Watson states. "RFID is living up to its promise so far. Our experience with RFID has helped us to discover interesting opportunities on items in every store that were enabled through the enhanced visibility coupled with store process improvements."