SHAKEUP IN THE NORTHERN CALIFORNIA INK INDUSTRY !

[Anonymous]

SHAKEUP IN THE NORTHERN CALIFORNIA INK INDUSTRY !

Recycled cartridges were all the rage a decade ago, but selling them in stores proved to be hard to do.Ten years ago, tech-savvy entrepreneurs found a green gold mine by selling recycled and refilled printer cartridges at discounted prices.

The region saw ink and toner shops pop up from Roseville to East Sacramento, including several franchise stores opened by a rapidly growing Caboodle Cartridge chain out of Santa Clara. Laser Recharge Inc. led the Sacramento-based success stories, but A-Plus Laser, Advanced Laser Products and many other local players thrived in that early market.

Their lower-priced products sold well because they answered growing demand. Many consumers in the late 1990s and early 2000s had purchased inexpensive printers — only to be shocked by what the manufacturers were charging for ink and toner cartridges.

Today, a franchise operation called Cartridge World dominates the local market, with eight stores in the region. The change reflects the upheaval in the ink and toner cartridge business. In the past decade, the industry has been rocked by increased competition from online and big-box stores and rapid improvements in digital print technology.

But some local pioneers in the industry have survived hard times. Several said their success has hinged on recognizing their clientele, serving them well and anticipating market shifts driven by new technology.
A dramatic change in plans

Mike Mooney, a 21-year industry veteran and founder of Laser Recharge Inc., said his remanufactured cartridge sales were thriving and the local competition manageable when he first saw that big changes were coming to the market.

“Profit margins were good back then,” Mooney recalled. “But what happened was shopping on the Internet became huge. It was 1998 or ’99, and electronic shopping just took off.”

The online prices for refilled ink and toner cartridges were tough to beat, especially when some companies simply did what the industry calls a “drill-and-fill.” Reputable companies usually describe themselves as “cartridge remanufacturers,” rather than “refillers,” because they test each cartridge and replace any worn parts before refilling it with ink or toner.

Laser Recharge still takes care of clients’ cartridge needs — “the legacy business” — but eight years ago Mooney shifted his focus to what the industry calls “managed print services” to audit, manage and anticipate all printer-related needs for a business.

“It’s scary early on to change from what you’ve made your profit on,” he recalled. “You want to fall back to your comfort zone, but you can’t.”

Today, Mooney’s new company, Encompass, is doing more than $5 million in sales for managed print services, mostly for larger corporations, hospitals and universities.

“We go after customers with 100 printers or more, but we can serve anybody who has an IT staff or help desk,” he said.

Managed print services are the industry’s new direction because new software allows for proactive service that can provide significant savings, he said.

“We can usually save a company in the neighborhood of 25 to 30 percent, and that’s in hard-copy costs, not including IT savings and increased efficiency levels,” Mooney said.

Varying strategies
Area entrepreneur Donald Wolf opened his first printer cartridge refill store in 2004 in East Sacramento by buying a Caboodle franchise. He later opened two other area Caboodle stores as the chain of retail shops spread to include 35 outlets in 14 states.

Seven years and one recession later, he remains in business. He said he has survived by dropping his Caboodle franchise, moving to a business clientele and buying only from the most respected vendors.“We drop, ship and deliver,” Wolf said. “We have no retail, walk-in business.”Wolf and 14 other former Caboodle franchise owners kept purchase prices down by forming a buyers group called Think! Toner & Ink, which is also the name for his home shop, now located at 1337 Howe Ave.

Additionally, Wolf cut his overhead by closing his other two retail locations as their leases ended, he said. Multiple locations didn’t fit his new business plan.

Wolf believes high-quality products will always be central to success in his business: “Our replacement cartridges have the same defect rate as brand-new ones,” he said.

Meanwhile, the new kids on the block — local Cartridge World franchisees — have an industry giant in their corner: The company is the leading global specialty retailer of remanufactured and refilled printer cartridges. It does more than $150 million in annual sales in the U.S., with more than 630 store locations in North America and more than 1,600 stores worldwide.

In recent years, Cartridge World franchisees like Micaela and Gary McConnell and Scott Hansel have helped the corporation expand its stores from Yuba City to Davis and El Dorado Hills to Elk Grove. The stores are just part of Cartridge World’s footprint in a global market worth more than $4 billion a year.

Gary McConnell had worked in the wholesale mortgage industry, but when that business collapsed a few years ago, the couple learned about Cartridge World at a franchising expo.

“We looked at 10 different business models, but Cartridge World’s dual-income stream (retail and business-to-business), plus the green aspect of the business, appealed the most,” he said.

After their initial investment “in the low six figures,” Gary said they opened their first franchise in April 2008 in El Dorado Hills, where they live.

By this spring, the couple opened a second store in Rancho Cordova and had cultivated some larger clients, including Marshall Hospital and Red Hawk Indian Casino.

“When we started in this business, Rapid Refill was our only competition (as far as similarly sized shops,) but now most of our competition is online,” Micaela said.

But the big-box stores set the standard on pricing, Gary said.
“We look at Staples , Office Depot and Office Max , and set our prices 40 percent to 50 percent less than the box stores,” he said. Customers also receive discounts for recycling empty ink and toner cartridges at Cartridge World outlets.The couple said they emphasize Gary’s role in business sales, offering free delivery and managed print services.An experienced technical staff is also vital for a store’s success because each cartridge part, from drum sides to wiper blade, must be carefully tested and replaced if it’s faulty.

“Our toner guy has 10 years’ experience and our ink guy has 20 years in the business,” Micaela said.A double-edged sword Another franchisee, Scott Hansel, owned a UPS store franchise before joining Cartridge World five years ago with a shop in Yuba City, where he lives.When other Cartridge World franchisees weren’t doing so well, the corporation approached Hansel about taking on more stores. He took over the Natomas store a year and a half ago and the store in Davis six months later.“There’s about a 10 percent to 20 percent churn in this business,” Hansel said. “People start franchises. Their life changes. Things happen.”

The tough economy has proved challenging, especially for his Natomas store, he said.
“The economy has been kind of a double-edged sword,” he said. “We do get more inquiries from people looking to save money, but some of our biggest customers, ones who used to spend $300 to $400 a month with us, have dropped to that amount once a year.”

But the biggest challenge has been customers’ fear of using a remanufactured cartridge.
“The No. 1 fear is that it will damage their printer or void their warranty,” he said, adding, “It’s actually illegal to void a warranty just based on the use of non-original products.”

When comparing the risk of printer damage by original cartridges versus recycled cartridges, “it depends upon the type of recycling,” said Larry Jamieson, a digital imaging industry analyst with Lyra Research Inc.

It’s extremely unlikely that an original cartridge or a high-quality recycled one will harm a printer, he said. Most recycled cartridges are remanufactured — taken apart and tested, have their worn parts replaced and are then filled with high-quality ink or toner.

“These remanufactured cartridges are among the higher priced of the recycled cartridges, since so much work went into refurbishing them,” Jamieson said.Recycled cartridges that are only refilled and sold as-is have lower prices but higher risks of damaging a printer:“It is the old maxim — you get what you pay for.”

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August 22, 2011 at 9:16 AM