UPM and Avery Expected to Raise Tag Prices
We understand that UPM Raflatac will implement a 10% price increase for all UHF inlays effective March 1; Avery Dennison will follow on April 1 with a 10% increase of their own. Some HF products will also be subject to the price increase. In our view this is simply a reaction to basic market forces in that volumes are simply too low at current pricing to make money. Consider that volumes are at roughly 500M tags annually and being split among 3-4 different players. The largest of these players is likley generating twenty million dollars in annual revenue, which is not nearly sufficient to cover the material and capital costs. We believe tag volumes need to be over 2B annually to support existing prices. We believe the lack of volume has likely been exacerbated by rising commodity prices that has further squeezed profitability. Both companies are currently in the process of informing customers of the price increase through letters and customer discussions.
Our view is that this is reasonable on two fronts:
First, price has been given away for too long and RFID companies need to be profitable for a healthy market to unfold. No vendor can continue to offer quality products and good service if they cannot make money. We would expect other players to follow suit at least on a partial basis. We expect many customers will view this as reasonable.
Second, end users are increasingly getting away from focusing on tag price and looking at the benefits of the solution versus the overall cost to implement. There are many examples of Gen 2 UHF tags that move into the several dollar range of price given incremental features such as extended memory or durability. Many of these higher priced tags fit nicely into asset tracking, vehicle registration, manufacturing or parts management applications. It’s about time that the notion of a $0.05 tag is no longer necessary to be a key driver for RFID.
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I would think that this news will have a couple of economic impacts:
1. Once one manufacturer steps out and raises prices, others will follow suit.
2. That will put lots of pressure on the justification for using tags one time through the horizontal supply chain.
3. Alternately, this will be an enabler for those projects using tags mutliple times in a closed loop system.