Korean supermart buys into RFID

Korea's second largest supermarket chain is counting on radio frequency identification (RFID) to understand its customers a tad better.

Samsung Tesco last year equipped its shopping trolleys and baskets with RFID chips to track customer movements at each of its 69 stores. The supermarket chain is a joint venture established in 1999 between consumer electronics giant Samsung and U.K. supermarket operator Tesco.

"Typically, supermarkets place products on the shelves according to food categories," Lee Kang-Tee, CIO at Samsung Tesco told ZDNet Asia during a RFID conference held here Wednesday. "So, if a customer wants to buy [various] ingredients for a breakfast meal, he would have to visit multiple sections of the supermarket."

"With RFID, we can make it more convenient for shoppers by placing products [on the shelves and aisles] according to their profiles and habits," he said.

Lee explained that data gathered by its RFID system allows the supermarket chain to position products such that they obtain maximum visibility with customers. It also enables store managers to identify crowded areas within their stores, and reposition the shelves to ease congestion. Data analysis is undertaken by an in-house application developed by the company's engineers.

Lee said the company is now in the second phase of its RFID implementation, which began in 2004, when it worked with key suppliers such as Procter & Gamble to embed RFID tags in goods to track their movement. This has allowed the company to improve out-of-stock and overstock situations, Lee said, but he declined to provide actual figures.

So far, Samsung Tesco has spent about US$800,000 on its RFID systems, US$300,000 of which was subsidized by the South Korean government, Lee said.

Customer data collected from the RFID system has been valuable, but he noted that setting it up proved daunting. For instance, off-the-shelf RFID readers that were used to pick up radio signals from the roaming trolleys could not fit into the store shelves. As a result, company engineers had to custom-make readers into a smaller size.

Lee also pointed out a limitation of the supermart's system. Because the RFID chips are attached only to the store's trolleys and baskets, there is no way of mapping the shopping patterns of customers who do not use a carrier, he said.

To ease security concerns that shoppers may harbor, Lee said notices have been placed around the store to inform customers that their shopping patterns are being tracked. The company has not received any complaints about loss of privacy so far.

According to Lee, plans for "smart shelves" are in the pipeline. These will allow suppliers to be notified whenever items that are placed on the store shelves, run low. "But it won't happen anytime soon," he said. "Not until we have [reached] a certain level of confidence in [RFID] technology."

Samsung Tesco is not the first supermart to embrace RFID in a big way. Amongst the growing number of retailers that have taken the RFID route, the United States' largest grocery chain Wal-Mart, famously passed a mandate to push its top suppliers to deploy RFID in their supply chain.

According to analyst house IDTechEx, the RFID market, including software and services, will reach US$26.2 billion by 2016.

Despite the strong market support, RFID has seen its share of criticisms including privacy concerns and interoperability issues.