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At your Leisure - 14 February 2005RFID: Manchester City and the Billion Dollar Brands
Image: RFID will enable better stock management, as companies can track the movement of a single item throughout a store or across a whole supply chain. Copyright: Chantal van Veen, stock.xchng What links one of the world's biggest corporate takeovers and Manchester City Football Club? The merger of Procter and Gamble (P&G) and Gillette, which was announced in January 2005, not only marked one of the largest recent company mergers; it also showcases the development of a technology which is widely predicted to impact deeply on all our lives: RFID. You can also view RFID: Manchester City and the Billion Dollar Brands as a Mind Map. What is RFID?RFID stands for Radio Frequency Identification. It is in fact a microchip which allows organisations to identify, count and trace items, whether they are goods or people. RFID technology has many benefits:
RFID chips can respond to and transmit messages. They can therefore 'communicate' with RFID scanners that are located in-store or in a warehouse. Each RFID tag stores a unique number which identifies a unique item. The chip receives a signal from the scanner which it responds to silently. It also sends out a signal three times every second which allows its whereabouts to be logged. Large numbers of tags can be identified at any one time, which makes processing a basket of shopping much easier than manually scanning a barcode. In the same way, a large group of people can be permitted entry to an event or location far faster than through a traditional turnstile system. How does Manchester City use RFID?
Image: RFID can speed up admission for crowds entering big events. Copyright: Lieven Volckaert, stock.xchng The connection between Manchester City and the combined P&G and Gillette lies in their use of RFID. It shows how leisure organisations such as football clubs can benefit from introducing the technology that big business is exploiting. Manchester City were the first club in Europe to take up the technology. Its CityCards provide ticketless entry to home games; they halve the time that it takes for crowds to enter the stadium. They track the fan as she/he buys food, drink and club memorabilia on match days. The Procter and Gamble/Gillette mergerSo what about Procter and Gamble and Gillette? Well, the companies are expected to formally complete their merger in autumn 2005. The selling price for Gillette was agreed at $57 billion. They are both very large organisations: P&G racked up sales of more than $51 billion in 2003-04, Gillette is thought to have generated $10 billion sales revenue in the same period. Together, the two companies are large suppliers to the global food grocery market; it is their combined power that interests observers of the industry:
Before we look into the technological aspects of the merger, let's familiarise ourselves with what the two firms do: Procter and Gamble own a total of 16 billion dollar brands, Gillette control another 5 of these massive-selling products. These are listed below: P&G: Tide, Always, Iams, Wella, Olay, Head and Shoulders, Bounty, Pantene, Charmin, Pampers, Crest, Downy, Folgers, Actonel, Pringles and Folgers Gillette: Oral B, Mach3, Braun, Gillette, Duracell Crucially in terms of generating a flow of new and innovative products, the two companies have strong records of spending on research and development (R&D). In 2003-04, Procter and Gamble's R&D spend totalled $1.8 billion; Gillette's expenditure reached $202 million in 2003. In staffing terms, P&G and Gillette employ 110,000 and 30,000 people respectively, manufacturing in more than 40 countries. The two firms operate in the Fast Moving Consumer Goods (FMCG) sector. P&G's CEO, A.G. Lafley, estimates that the merged companies could raise their operating margins from 20% to 25% within a decade. This is undoubtedly the main reason for the two firms to combine. But the merger also helps address the power-relationship between suppliers and retailers in the global supermarket retailing business. Wal-Mart, who also own Asda in the UK, are so large that they can make exacting demands of their suppliers in terms of cost, delivery times and product standardisation. Suppliers are naturally keen to see their products on the shelves of the main retailers. They will often agree to the terms of any offer by firms like Wal-Mart. But combining Procter and Gamble and Gillette could help challenge the rules of the retailer-supplier relationship. As separate organisations, the two firms lack the power to stand up to Wal-Mart:
Observers suggest that this will give P&G extra market power to dictate terms to Wal-Mart. The retailer will not be able to refuse to stock the suppliers' products; it would not be able to offer a comprehensive range of consumer items if it did so. The technological aspects of the mergerThe technological advantages that Procter and Gamble and Gillette have are well known within the industry. Both firms are considered leaders in RFID. The newly expanded P&G could dictate to Wal-Mart the terms of how they introduce RFID into the grocer's supply chain. Industry analysts also suggest that P&G could use its technological advantage to beat off competition from firms like Unilever and Colgate. Some aspects of the FMCG sector are compared in the following table: An analysis of the FMCG sector
Source: Data from companies' Web sites and annual reports So the process of consolidation in the FMCG sector continues, with two of the major players combining. Very large suppliers in an increasingly scale-oriented industry are matching very large retailers. The combined firm's use of innovative IT solutions to customer relationship management, distribution and human resource management is regarded as a means of gaining competitive advantage over other market players. 
Image: The merger of P&G and Gillette will mean stronger market power for the company, greater economies of scale and increased use of new technology. Copyright: Jenny W. stock.xchng The economies of scale that the newly expanded company will enjoy are likely to be as follows:
Although the two firms operate in the same sector, they specialise in different parts of the market. P&G is strong in women's personal care, whilst Gillette is closely associated with men's 'grooming' products. Nevertheless, there are likely to be significant job losses as a result of the merger. The company envisages shedding around 6,000 employees, more than 4% of the combined firm's total staffing. The merger of P&G and Gillette is likely to result in the firm concentrating on developing innovative products and their technological leadership. RFID is likely to be foremost amongst these developments. But there are fears and threats over RFID use. These are:
But the benefits that firms want to see from RFID's introduction are:
The use of RFID in the leisure and recreation sectorIn the leisure and recreation sector, RFID has already produced benefits for organisations. Deloitte reported the following instances of RFID use in the sector:
Image: Legoland use an RFID network to ensure child protection at their park in Denmark. Copyright: Thomas Warm, stock.xchng 'Big brother' culture?Some consumers in the EU have expressed concerns about the use of RFID. See the related Web sites for research listed below for more information on this. Wal-Mart's global Web site, though, (also listed below), aims to reassure concerned shoppers. It stresses that its RFID tags are only active when the goods they are attached to are in the warehouse and in cases or on pallets. Inside their stores, the company says that the tags are not activated. Clearly, the use of RFID will increase as more organisations come to realise the security, cost and marketing benefits that it can produce. But businesses must understand that introducing such technology could be seen as a step too far towards creating a 'big brother' culture in society. When our every movement is monitored, we might well ask if this is a price too high to pay, just so that organisations can control their costs and deliver more effective products and services to us. In the meantime, fans of Manchester City FC can delight in the fact that, whilst silverware remains elusive, there is at least one competition in which their club leads the way. ActivityLook into the benefits that leisure organisations can gain from introducing an RFID system. Imagine you work in the marketing department of a large leisure complex, such as a 'slide and splash' park. Prepare for a class discussion of the costs and benefits of such a system. Write a short paper advocating either the introduction of RFID or arguing against such a system at your place of work. Think of the impacts on:
Related Web sites for research
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