Avery Dennison Is Hoping New Technology for Its Labels Will Stick
Inside a nondescript, low-rise office building across the street from a gravel pit in Irwindale, a scientist in a white lab coat is making a high-tech trip to the grocery store.
In his basket are familiar items: Total cereal, white-corn taco shells, facial tissue, Triscuits. But he doesn’t go through a typical checkout process. As he carries his basket past black scanners that look like flat stereo speakers, the bill appears on a nearby computer screen, detailing the cost of each item.
A glimpse of the future? Avery Dennison Corp. hopes so.
Avery engineers and scientists are working to perfect a technology that could give the Pasadena label-making giant a foothold in the developing world of radio frequency identification, which could one day make the bar code obsolete.
“Shame on us if we’re not the leader in this,” said Philip M. Neal, chief executive of Avery, which invented no-lick postage stamps but is better known as the world’s leading supplier of the paper used in hundreds of consumer product labels. “It’s a huge opportunity right here in our sweet spot.”
A radio frequency identification, or RFID, device uses a technology familiar to motorists who pay tolls with an electronic Fast Pass: a combination of scanners and signal-emitting semiconductors that in theory can identify, track or activate virtually anything. Boosters see RFID-equipped refrigerators reporting spoiled food and RFID bandages monitoring a wound while taking a patient’s temperature.
Of immediate interest is RFID technology’s potential to attach a number and specific radio frequency to every consumer product in a store or warehouse, allowing it to be tracked and identified anywhere, anytime. That could provide retailers and manufacturers with a cheap and easy way to monitor inventory and prevent theft. Analysts figure that the annual market for the technology could hit $10 billion in sales within a decade.
“This is a lot like what the Internet was in 1995,” said Mark Roberti, editor of RFID Journal, a quarterly publication in Hauppauge, N.Y. “We are on the verge of a major change in the way companies do business.”
RFID’s profit potential became clear this year when Wal-Mart Stores Inc. asked its top suppliers to put radio tags on shipping cartons and pallets sent to its warehouses by the beginning of next year.
The request by the world’s biggest retailer set off a scramble among companies including Hewlett-Packard Co., IBM Corp. and Sun Microsystems Inc. to develop workable RFID systems. And it caught the attention of label makers such as Avery, which would perform the low-tech but crucial task of inlaying the crumb-size chips and their tiny antennas on millions of adhesive labels.
Avery, with more than 20,000 employees worldwide and 2003 revenue of $4.8 billion, plans to spend nearly $20 million this year on RFID development, creating at least 20 new jobs that would increase the size of its RFID team to nearly 50. A new plant in South Carolina is planned for next year.
“We’re going to spend as much as it takes” to grab a sizable chunk of the market, Neal said. The company doesn’t expect to make money on its RFID business for several years, although it recently told Wall Street that it could record “tens of millions” in revenue from the division beginning next year.
As it is, Avery already has a proprietary technology for mass-producing adhesive labels embedded with RFID chips. (The process is so secret that Stan Drobac, Avery’s vice president for RFID applications, won’t identify the machine that’s used or the company that makes it.)
Avery claims that the process could significantly reduce the cost of RFID tags -- key for big retailers faced with buying millions of the tags each year. Industry estimates for RFID tags range from 10 cents to $1 apiece.
“What everyone wants is a low-cost tag that they can put on a case of Rice Krispies and shampoo,” said Roberti of the RFID Journal. “You need a big company that can produce things on a mass scale to get the price down. Avery is well positioned to be a big player.”
It also hopes to gain an edge by devising ways to use RFID tags in hundreds of products it already makes, such as security badges. When equipped with radio tags, the badges could allow visitors to be tracked at all times.
This year, Avery developed something called the Secure Strap, a $40 electronic locking device that can alert officials immediately if a shipping container has been tampered with by a thief or terrorist. With about 10 million containers coming into the United States each year, “the potential return on this just in shipping could be huge,” said Joe Miglionico, Avery’s business development manager.
That has not gone unnoticed by Avery’s competitors. Some RFID chip makers, such as HP and Alien Technology Corp. of Morgan Hill, in Northern California, also are developing processes for embedding radio-tagged chips in adhesive labels. And smaller competitors in the label-making field are jockeying for a piece of the action.
“Avery is pushing into a crowded field and competing with a lot of smaller, more nimble companies,” said Ghansham Panjabi, a packaging analyst with Lehman Bros. “There are a lot of unknowns here.”
Also in the hunt are some of Avery’s old foes in the label stock business, including UPM-Kymmene Group, a Finnish paper products company. A UPM subsidiary, boasting Avery-like mass-production capabilities, is helping a supplier put RFID tags in Dutch library books, making them easier to track.
(Avery and UPM are being investigated as part of a government antitrust probe of the U.S. market for label stock, which is used to make finished labels for wine bottles, clothing and other consumer goods. And regulators in Europe this year began investigating possible price fixing and manipulation of the paper market there.)
RFID technology isn’t without opponents. They see thousands of manufacturing jobs lost. And they have privacy concerns, fretting that the technology could allow someone to drive by your house and hold out a scanner that could read all the labels inside, revealing what kind of beer you have in the refrigerator and where you buy your clothes.
Several states, including California, Arizona and Utah, have attempted to pass or are drafting legislation to regulate the fledgling industry; some would require that RFID tags be “killed” on purchase.
“We want to make sure consumers don’t run the risk of thinking they are buying a pair of running shoes, when they are really a tracking device,” said Katherine Albrecht, head of Consumers Against Supermarket Privacy Invasion and Numbers, a New Hampshire group that has privacy concerns about RFID.
“A manufacturer could press an RFID in the rubber of a shoe,” she said, “and you wouldn’t even know it is there.”
RFID boycotts -- coupled with delays in creating industry standards -- already have held up the spread of radio tags and could cause further setbacks. Some Wall Street analysts, for instance, expect Wal-Mart to push back its time frame for suppliers to install RFID tags on their shipments.
“It’s new and it’s a big opportunity longer term,” Panjabi said. “But you want to be cautiously optimistic. You have to make sure profit expectations stay relatively realistic.”
