According to VDC’s recently released Retail CPG Vertical Market volume of its annual RFID Business Planning Service, the global market for RFID systems in this sector reached around $161 million in 2005, with hardware accounting for approximately 41%. VDC expects stellar growth in the next five years, predicting a compounded annual growth rate (CAGR) of nearly 57% with RFID revenues reaching $1.5 billion in 2010.

VDC reports that during 2005, many RFID suppliers improved their educational programs, strengthened their sales channels, and generally raised RFID awareness and adoption. But the real driver behind the RFID adoption was the need to comply with standards.

Users focused on meeting mandates with varying degrees of deployment. Live deployments did occur in 2005 and the feeling is that this is a milestone in the RFID adoption process. Nonetheless the number of tagged retail CPG pallet shipments remains low at less than 1% of total shipments so there’s still a long way to go. VDC says that companies who adopt RFID because of mandates initially want to measure an internal return on investment (ROI). However ROI is only realizable when real-time RFID information becomes part of the enterprise's underlying business processes. The majority of purely compliance-based adopters have not yet reached this level yet so it still remains difficult to measure the real returns.

VDC asserts that stronger retail CPG shipments were held back in 2005 due to several key factors. First, a large part of the mandated suppliers limited their deployments and only met the minimal mandate requirements by installing manual labeling processes. Technology performance (i.e., read rate accuracy, dense reader mode operation) was unconvincing at the beginning of 2005 but improved as the year progressed. The introduction of higher-performing Gen2-compliant products and firmware upgrades was a definite step forward. And finally, the ISO-18000-6C standards approval process has been more protracted than expected, delaying Gen2 product development and user adoption.

Michael J. Liard, Director of VDC's RFID Practice, comments "While we feel the market potential for RFID solutions is immense, we argue the market remains very much a work-in-process. 2006 will prove to be another interesting year."