David C. Wyld is the Mayfield Professor of Management and is the Director of Strategic e-Commerce Initiative at Southeastern Louisiana University.
The E.&J. Gallo Winery is the leading winery in the United States and the second largest wine company in the world. The Gallo Winery is among the “second wave” of Wal-Mart’s major suppliers that must comply with the retailer’s mandate requiring RFID-labeled cases and pallets of goods by January 2006 to significant portions of its distribution network. Due to the consolidation that has occurred in the American wine industry, more and more of the leading wine producers (such as Constellation Brands, Diageo, and the Chalone Group) will be compelled by the bargaining power of their buyers to comply with retailer mandates.
The E.&J. Gallo Winery is the leading winery in the United States and the second largest wine company in the world. The Gallo Winery is among the “second wave” of Wal-Mart’s major suppliers that must comply with the retailer’s mandate requiring RFID-labeled cases and pallets of goods by January 2006 to significant portions of its distribution network. Due to the consolidation that has occurred in the American wine industry, more and more of the leading wine producers (such as Constellation Brands, Diageo, and the Chalone Group) will be compelled by the bargaining power of their buyers to comply with retailer mandates.
However, the challenge and complexity of compliance for wine makers may be the greatest of any consumer products company. In order to comply with state laws, wine marketers in the United States must work with a network of local distributors (in Gallo’s case, 480). Rather than developing and implementing their own internal RFID compliance programs, wine marketers must work with forward distribution partners to comply with the Wal-Mart’s mandate.
In practice, 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, the distributors may be able – at least in the short-term – 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 Wal-Mart and other major retailers.
As retailer mandates expand, 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 of not only 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 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 the most recent annual sales data from the Wine Institute, when using a $7 price for a bottle of wine as the cut-off between high and low priced offerings, while lower priced wines, such as Bronco Winery’s “Two Buck Chuck” accounted for 7 out of 10 bottles sold, premium 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.
Having item-level tagging of wine products can yield interesting and heretofore impossible levels of sales data and control. With such granular information, winemakers will be able to track performance data on items that are labeled and marketed in different ways. For instance, a winery will be able to judge the effectiveness of sales promotions even at the store level, being able to track sales of 750ml bottles of blush wine that were stocked in different parts of the same store, were labeled differently, or were tagged with a rebate offer.Also, if a question arises regarding product quality, winemakers will be able to track down specific bottles or production runs, rather than having to sift through an entire class of product. 
Moving to case and item-level tagging will allow for the partners in the wine supply chain, from growers to wineries to distributors to retailers, to better assure product availability, reducing out of stock conditions and lowering the need for carrying safety stock. It will also provide for much higher levels of inventory accuracy at far lower expense than manual counting methods.
While the economic and security cases for RFID-based labeling of wines are strong, the liquid nature of the product poses some considerable physics obstacles. However, wine presents opportunities for increased read accuracy over other liquid products. Intermec’s Director of Product Marketing, Dan Bodnar, recently commented that: “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.
Ernie Chachere, E.&J. Gallo Winery’s Supply Chain Vice-President, recently commented that for the wine industry, as well as all other suppliers of consumer goods, “There’s a lot of discovery left to do (on RFID).” However, there is also great potential for RFID to smarten the wine supply chain from the fields of Sonoma County to your local store shelf.
