RETAILERS SHOULDN'T ALLOW WAL-MART TO DOMINATE RFID

Michael Garry

The labor turmoil that racked Southern California this year, costing the unions and the three affected supermarket chains dearly, was spawned by a now common affliction: fear of Wal-Mart.

Yes, when it comes to labor costs, there is a good reason to worry about Wal-Mart, which is determined to operate by a lower, non-union wage scale. Yet I find it interesting that while food retailers complain bitterly about Wal-Mart's labor practices, they expend relatively little energy fretting about one of Wal-Mart's other major strategies for gaining competitive advantage: its use of technology.

Last week, as reported in SN's Technology & Logistics section, Wal-Mart kicked off its RFID (radio frequency identification) program in Texas. At a warehouse near Dallas, and at seven Dallas-area Supercenters, it has begun reading RFID tags on pallets and cases from eight manufacturers, thus identifying these products in a new and very efficient way. Another 129 suppliers are expected to follow suit by Jan. 1.

Wal-Mart, trying to prepare its suppliers and perhaps motivate other retailers, has not been shy about promoting RFID. At this week's Retail Systems 2004/VICS Collaborative Commerce show in Chicago, several top Wal-Mart executives will be on hand to discuss its RFID initiative.

Of course, supply chain efficiency has been the name of Wal-Mart's game -- and one of its chief methods for cutting costs and lowering prices -- for a long time. Yet the beast of Bentonville never rests on its laurels, and with RFID and the new EPC (electronic product code), it is once again seizing the initiative.

Most U.S. food retailers and distributors, meanwhile, are content to cede first-mover advantage on RFID to Wal-Mart. Of the three chains that spent millions battling to keep their labor costs low, only Albertsons has announced an RFID initiative that would cut its supply chain costs and even boost top-line revenues by keeping products in-stock.

In fact, Albertsons remains of this writing the only U.S. food distributor to throw its hat into the RFID ring. Other retailers committed to programs are either outside mainstream food retailing (Target) or outside the U.S. (Metro Group, Tesco). Only one food retailer, Wegmans Food Markets, even supported the development of EPC-based RFID systems at MIT's Auto-ID Center.

With all the attention -- some say hype -- accorded RFID, more food retailers are expected to start doing something with it. Indeed, Peter Abell, senior partner, ePC Group, told me that at the Retail Systems conference, research will be released showing that many large retailers will begin entering the fray over the next 18 months.

With any new technology, there are risks to being a pioneer, and that is certainly true of RFID. The costs involved remain considerable -- both for the tag (still around 50 cents) and the supporting infrastructure. Many of the suppliers working with Wal-Mart have not fully committed to the technology beyond meeting the company's 2005 mandate about pallets and cases. The technology itself is still being perfected, and standards for it are still being developed. Privacy concerns loom.

Still, I don't think food retailers can afford to sit by the sidelines and allow their biggest competitor and greatest threat to gain a decisive competitive edge in the deployment of this technology.

Wal-Mart may eventually have to face reality and deal with unions just as it is dealing with recalcitrant communities. That's why it is preparing for a future in which RFID technology will be its cost-cutter.