RFID tag prices need to go down drastically

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The consensus to emerge from last week's RFID conference was that the true benefits of the technology will not materialize until tag costs go below 10 cents. "What Gen 2 is going to do, hopefully, is get everybody to use the same standard and consequently drive down the costs," said Gary Cooper, Tyson Foods' CTO. "I need the cost to really drop because we're moving hundreds of millions of cases a year and we're a fairly low-margin business. Just do the math: 20 cents times hundreds of millions." Cooper also said that about 90 percent of the pallets and cases Tyson ships to Wal-Mart's Dallas-area distribution centers are now tagged. Tyson has developed business-case models showing a payoff from RFID by late next year or in 2007. Tag costs, however, must hit the single digits for the company to see a return on investment.
EPCglobal finalized the UHF Generation 2 standard in December with the new tags likely to become available later this year. Tag manufacturers, analysts, and retail IT directors said it might take from one to five years for the cost of Gen 2 tags to drop to 10 cents each. Gartner's Jeff Woods said tag cost has become a much bigger issue than it was only nine months ago, now that some suppliers have developed potentially solid business cases for RFID. "Six to nine months ago, the business cases were hope and faith," Woods said. "Today, we've got some reasonable leads on what the business cases would be, but they don't have a chance of clearing the existing tag costs." AMR Research's Dennis Gaughan added: "This is the ultimate chicken-and-egg scenario. More people won't do RFID until the tag costs come down, but the tag costs won't come down until more people do it. These guys are in a bad situation."