*NEWS*REFILL CO TAKE AIM @ PRINTER GIANTS
*NEWS*REFILL CO TAKE AIM @ PRINTER GIANTS
2006-09-15 at 12:38:00 pm #16462
Ink-refill companies take aim at printer giants
GRAPEVINE — Every month, Mark Barnes used to buy $600 worth of new, name-brand inkjet and toner cartridges for printers that churn out a steady stream of contracts and marketing material in his real estate office.But lately Barnes has been taking his empty tanks to a Cartridge World shop near his office, where he buys cartridges that have been refilled with new ink.”I’m spending about $400 a month now,” Barnes said. “I like doing other things with my cash.”Customers like Barnes represent a small but growing segment of printer owners who are buying private-label cartridges from refill stores and office-supply chains and plugging them into their Hewlett-Packard, Lexmark and Epson machines. They account for less than a quarter of U.S. printer ink sales, according to Lyra Research, which tracks the industry. But analysts say the number is certain to go much higher.That poses a growing threat to the big manufacturers, who make more money from replacement cartridges than from selling printers.Take Hewlett-Packard. In its most recent fiscal year, HP earned more than half its $6 billion operating profit from its imaging and printing group. And some analysts believe that the number understates the importance of ink and toner to HP because the imaging group includes printers, which HP sells at little or no profit.HP doesn’t break out results for individual items, but ink and toner “are both nicely profitable,” says Pradeep Jotwani, the company’s senior vice president of imaging and printing.Name-brand ink cartridges can run $30 to $50, even more for some color versions. Toner cartridges can top $100. After a few trips to the store, consumers who bought inkjet printers and businesses that bought laser printers will usually have spent more on replacement cartridges than on the machine itself.”You sell inkjets [printers] to sell them ink,” said Cindy Shaw, an analyst with Moors & Cabot. “It’s very much the razor-and-blade business model.”The printer manufacturers say their ink is better, and they point to independent researchers who have reached the same conclusion.But Burt Yarkin thought the high price of name-brand cartridges left room for upstarts. A few years ago, he left a children’s clothing chain to lead the U.S. division of Cartridge World.”The price of cartridges has not moved down at all over the years,” Yarkin said. “If they give us their empty ink cartridges, we sell them a refilled one, and the savings are 30 to 50 percent.” The price break on toner cartridges, which are more difficult to refill, is closer to 15 percent to 20 percent.Privately held Cartridge World, which was founded in Australia in 1997, has nearly 1,300 stores, including 440 in the United States. It says it will have 600 U.S. stores by year-end.They are run by franchisees like Sheri de Wet, who was casting about for a new career after she and her husband left middle-management jobs at a software company. They considered and rejected haircutting, sandwich and window-cleaning opportunities before opening two Cartridge Worlds, in Denton and Frisco.”We wanted to get in on the ground floor for a product that is growing, and this made perfect sense,” she said. “Everybody has a printer.”De Wet said her two shops have gross sales of about $110,000 a month, much of it to business customers, and she wants to open more stores. The company said franchise fees and other startup costs run $75,000 to $130,000.Refill shops like Cartridge World, Island Ink-Jet Systems and Caboodle Cartridge also compete with office-supply chains such as Staples and OfficeMax, which sell private-label cartridges or offer in-store refilling kiosks.HP watches these competitors closely and has sued or threatened to sue several of them, alleging infringement on HP ink and cartridge patents.HP told Cartridge World last year that four of its inks violate HP patents. Yarkin said his company is trying to settle. HP recently lodged similar complaints about ink sold by OfficeMax and Walgreens, and sued a Chinese firm that makes cartridges that work in HP printers.