Focus on Logistics
With wine producers and distributors looking to RFID for more efﬁcient production and innovative marketing of wine, as well as for consumer security and anticounterfeiting solutions, the wine industry is looking like a truly unique target for RFID applications by David C. Wyld, Southeastern Louisiana University
Fine wines and smart labels
ore Americans are drinking wine today than ever before, as the number of Americans who drink a glass of wine at least once a week has increased from 19.2 million in 2000 to 25.4 million in 2003. According to ‘Entrepreneur Magazine’, the growth of the American wine market should continue for some time, as wine marketers are ﬁnding great interest not only among the more afﬂuent and
aging Baby Boomers, but among the younger Millennial generation, presently in their twenties, as well. As a consequence, the American wine industry is growing rapidly. American wine sales have experienced year-over-year increases across all outlets, as retail store sales are up 2.8% and restaurant-bar sales are up 8.1%. The U.S. wine market is Global IDentiﬁcation - March 2005
presently estimated to be a $21.6 billion industry today. According to the most recent annual data available from the Wine Institute, California vintages still dominate the American market. While California’s leads the nation with over 800 wineries, the wine industry is truly national in scope, with almost 3000 more wineries located throughout the country. While the wine area in supermarkets and specialty stores have copious offerings from many different wineries on their shelves, the American wine market has in fact become more and more concentrated in the past few years. As the costs of land and operations have skyrocketed and competition has increased, wineries have been combined to produce economies of scale, while other wineries have been bought to become part of a portfolio of brands for companies such as Constellation Brands, Diageo, and The Chalone Group.
Wines and retailer mandates The E.&J. Gallo Winery is the leading winery in the United States and the second largest wine company in the world. Due to its sales volume, the Gallo Winery is among the so-called “second wave” of Wal-Mart’s major suppliers that must comply with the retailer’s mandate to supply RFID-labeled cases and pallets of goods by January 2006 to signiﬁcant portions of its distribution network. As noted by AMR Research, the expected initial cost for a consumer products company just to comply with Wal-Mart’s mandate has been projected to be as high as $25 million. However, the challenge and complexity of compliance for wine makers may be the greatest of any consumer products company. This is because wine marketers in the U.S., in order to comply with state laws, must work with a network of local distributors (in Gallo’s case, they have 480 distributors). www.global-identiﬁcation.com
Rather than a winery being able to develop and implement its own internal RFID compliance program to meet the Wal-Mart mandate, the company must work with its forward distribution partners to comply with the retailer’s mandate. In practice then, major wine marketers such as Gallo will face the prospect of having to rely upon their supply chain partners to assure the winemaker’s ultimate compliance. However, on the ﬂip side, the wine distributors may be able – at least in the short-term – to provide a value-add service to the major wineries if they choose to pursue a “slap-and-ship” strategy by applying the tags to cases and pallets at the distributor’s facilities. To complicate matters, distributors will often routinely mix wines and spirits from a variety of the suppliers it represents onto blended pallets for shipments to retailers. This only serves to further complicate the wineries’ efforts to comply with the mandates of major retailers. As retailer mandates expand, more and more wine companies will have to pursue RFID tagging of their product at least at the case and pallet levels. Thus, the wine industry will need to both individually and collectively look at how to not only meet the mandates, but also examine the potential uses for RFID inside their four walls (and the four walls of their distributors as well) as a means of improving tracking and monitoring of both wines as works in progress and as ﬁnished goods. Wineries stand to beneﬁt from the internal management of their operations through RFID tagging not only of pallets and cases of ﬁnished product, but tagging of their inventory in production in barrels and casks. Lessons for winemakers can be drawn from the beer industry, In the United Kingdom, ﬁrms such as Trenstar Inc. and Scottish Courage Brewing Ltd. are showing how kegs can
be more accurately tracked with RFID tags. Such implementations have shown that readability rates can be upped dramatically on these liquid-containing vessels through the use of speciﬁc materials for the tag’s antenna and better placement of the RFID device on the container. Winemakers can also look to combine RFID tags with sensor technology to monitor barrels of wine for temperature changes that could impact product quality and integrity. The U.S. wine market in 2003 (source: The Wine Institute)
The business case for item-level tagging of wine products is stronger than with almost any other food or beverage product on the market. Jonathan Byrnes of the Harvard Business School argued that the cost/ beneﬁt of RFID for marketers of “low-value grocery-like products” was poor. However, alcoholic beverages, as a whole, have a far better ROI with RFID, as the ratio of the cost of the tag to the retail price of the product is far higher than in other grocery store items. The structure of the American wine market also points to the importance of tagging a signiﬁcant percentage of the wine bottles produced. Using a $7 price for a bottle of wine as the cut-off between high and low priced offerings, while lower priced wines accounted for 7 out of 10 bottles sold, the higher priced units amounted for fully 62% of winery revenues. Thus, winemakers may look to – at a minimum – proceed to item level tagging of their premium products, both for better security and control and for their marketing value.
The challenge of liquids While the economic and security cases for RFID-based labeling of wines are strong, physics does pose some considerable
obstacles due to the liquid involved. Much has been written about the problems posed by liquids and metals for accuracy in RFID tag reading. Products with high water content tend to absorb and reﬂect radio waves, and as a consequence, read rates of liquid products tend to be problematic – often as much as 20% less than comparable “solid” products. When reading pallets with cases of liquid products, readers tend to be able to accurately read cases on the perimeter of the pallet. However, cases at the core of the pallet tend to be incorrectly read, due to radio waves bouncing off or simply being absorbed by the liquid product. However, wine presents opportunities for increased read accuracy over other liquid products. Intermec’s Director of Product Marketing, Dan Bodnar, commented that: “Products can present a range of reading characteristics. For example, liquids typically offer less bulk and signal interference where the handles are, so that tags read better if placed on carton tops.” Thus, on both the pallet/case and individual item levels, reading accuracy can be enhanced if the RFID tag is placed on the neck or the top of the wine bottle (even in the cork itself), rather than being integrated into a smart label nearer the base of the bottle. Under no circumstances should a winemaker consider placing the item-level tag at the bottom of the bottle, as read accuracy would be severely diminished due to the simple physics of the signal having to travel through the maximal amount of liquid near the bottle’s base.
RFID and anti-counterfeiting Wally Klatch, a management consultant and author of the forthcoming book, ‘Supply Chain for Liquids: Out-of-theBox Approaches to Liquid Logistics’, notes that wine is unique in that: “Wine is extraordinarily constrained by ‘cultural’ Global IDentiﬁcation - March 2005
wine. When the criminals’ cellars were raided, police found approximately six million bottles of faux Chianti and 20,000 fake bottles of Sassicaia’s super Tuscan red. • In Australia, Southcorp is ﬁghting a sophisticated counterfeiter of its Penfolds’ Grange. So-called “Grunge” wine is on the secondary market, with exacting replicas of the Grange wooden boxes, corks, bottles, and tissue paper.
Ratio of margin to RFID tag cost in food and beverage products (adapted from Hintlian and Proud, 2004)
California table wine shipments and revenues for 2003 (source: The Wine Institute)
factors – the habit of viewing the bottle and its label, the snifﬁng of the cork, and other factors that do not have parallels for most other liquids. For other consumer beverage products, speciﬁcally those served in restaurants, the liquid is served to the customer by the glass without his knowing or even caring about the ‘history’ of the product.” As such, Klatch sees wine as being uniquely suited for RFID tagging in the beverage market, due to the need to assure the customer that the history of the bottle that is being purchased is genuine. Wine really has two markets – the primary sales market and the secondary market, where ﬁne wines are bought and sold. Recently, high proﬁle cases have brought to light the fact that wine – a product that cannot be tested for its genuineness before it is relatively destroyed by the opening of its container – is a relatively easy target for counterfeiters. Two cases illustrate how criminal producers can imitate true wines: • In Italy, twelve people were arrested for attempting to market copies of Sassicaia
Estimates are that as much as 5% of all wine sold in the secondary collectors market is counterfeit. While the amount of fake wine ﬂoating around in the secondary market is far less a percentage than that found among antiques and other collectibles, counterfeit wine still accounts for tens of millions of dollars worth of product sold each year. Moreover, while many wine experts claim to be able to spot and taste fake valuable vintages quite easily, the presence of counterfeit product casts a pall on the entire secondary wine market, reigning in many who may wish to participate in wine collecting and dampening demand for select brands and even the stock of entire wineries. While not directly impacted by the activity in the secondary wine market, wineries still have a great stake in ensuring the long-term integrity of their product. This is because their ability to assure originality and authenticity adds value to today’s product on the store shelf that may indeed become tomorrow’s prized vintage. Indeed, Sassicaia’s producer, the Marchese Nicolo Incisa della Rocchetta, in addition to adding etchings to be embossed in the glass of its wine bottles, is speciﬁcally considering adding an RFID-chip to its bottle labels. It is anticipated that in a short time, other wineries will follow suit. In the end, we may likely see the wine industry as one of the ripest ﬁelds for RFID applications in America and beyond.