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 user 2003-11-24 at 9:07:00 pm Views: 128
  • #7983
    Ink wars: H-P vs. the recyclers

    As two franchise chains enter the Bay Area with stores for refilling empty printer cartridges, Hewlett-Packard Co. is stepping up its efforts to convince consumers to purchase its new ones instead.

    CARTRIDGE WORLD opened its first California store in Foster City three weeks ago to refill and remanufacture printer cartridges for half the price of a new one. Meanwhile, Island Ink-jet Systems Inc. opens its first area outlet Dec. 1 at a San Jose mall. At the same time, Palo Alto-based H-P, whose cartridges are its most profitable products, expanded a recycling program Nov. 12.

    H-P says it is being environmentally responsible by keeping spent cartridges out of landfills, but critics say the company is really just trying to keep them out of the secondary market. H-P also released a study from an independent testing organization — but which H-P paid for — that shows new H-P cartridges are more reliable than used ones.

    H-P does have a bottom line to protect. In financial results for the fourth quarter of fiscal year 2003, released Nov. 19, HP reported its imaging and printing division had an operating profit of $1 billion, a record and nearly twice the operating profit of its other divisions combined.

    The total inkjet market is estimated at $21 billion this year, according to Lyra Research, a printing industry market research firm based in Newtonville, Mass.

    Franchising may bring professionalism to the reuse part of that market. The field has been tainted by stories of Internet spammers pitching refilling businesses that may only be a guy in his house pumping in whatever ink is available. Clean, well-lighted stores offering different inks, lower prices and guarantees, may give new-cartridge makers like H-P, Canon, and Epson serious competition.

    When a cartridge is refilled, ink is merely pumped in to replace what’s been used. When a cartridge is remanufactured, the components, such as the nozzles through which ink flows onto the page, are also rebuilt or replaced.

    While new-cartridge makers worry about competition, they hold an 87 percent share of the cartridge market, versus 13 percent for the reuse business, according to industry reports. But as more consumers resist paying $30 or more for a new cartridge, the remanufactured products look more appealing.

    “The future is good for this type of business,” says Abbe Daly of the International Franchise Association, of Washington, D.C. Rather than dealing with online businesses of unknown reputation, customers might be more comfortable going to a local store, Daly says. “With a franchise you know what to expect, and that is the strength of franchising.”

    But makers of new cartridges say buyers of used ones may pay less up front but more in the end.

    “They may be assuming that if product X is 20 percent cheaper that turns into 20 percent savings,” says Nels Miller, a senior scientist in H-P’s printing and imaging division. “We wanted to point out that reliability is intrinsic to the total customer experience.”

    H-P hired QualityLogic Inc., of Moorpark, to test new black and color H-P laser and inkjet cartridges against comparable remanufactured ones. It found that used black cartridges failed nine times as often as H-P’s new cartridges, and used color cartridges failed 50 times as often than the new ones. Remanufactured cartridges were more likely than new to run out of ink prematurely or produce a high rate of prints that had to be thrown away. In other words, you may save money on ink but lose it on paper, Miller says.

    Gary James, cofounder of Quality Logic, anticipates questions about the apparent conflict of interest in doing a study favorable to the printer company that paid for the study.

    “There’s always that question … but QualityLogic stakes its reputation on that independent third-party testing,” James says.

    Only 1 percent of H-P black ink cartridges failed out of the box and only 1 percent of its color cartridges failed in use or produced bad copies. In other tests, its laser toner cartridges were defect-free.

    PC World magazine in September published its own test. While it also reported new cartridges are better, used ones may be sufficient for many print jobs.

    Cartridge World is the first remanufacturing chain to enter the Bay Area with the opening of Yvonne Ryzak’s franchise in Foster City.

    “People are tired of paying outrageous prices for products that were designed to be refilled,” says Ms. Ryzak. “This is a huge untapped market.”

    Her Foster City outlet is one of 45 Cartridge Worlds to open in Northern California by 2005, says Burt Yarkin, of Emeryville, a master franchisee. Stores are planned for Berkeley, Roseville, Fremont, Palo Alto and San Jose.

    Island Ink-Jet Systems, of Canada, plans to open its first California store Dec. 1 at the Westfield Shoppingtown Oakridge mall, says Carey Porcher, CEO.

    The rise of consumer digital photography will drive demand for refilling businesses, says Porcher. “The way I see it, where you see Kodak film [in a store] you are going to see printer products.”

    But H-P’s approach is to recycle cartridges so they don’t end up in landfills, says Boris Elisman, vice president of marketing for H-P supplies. H-P on Nov. 12 announced that every new cartridge package will contain an envelope for sending the spent cartridge back so the plastic can be used for other products.

    Cartridge World’s Ms. Ryzak claims H-P is doing that to keep cartridges off the secondary market. But H-P’s Elisman says H-P has long had a recycling program for laser cartridges, and laser remanufacturers still thrived.

    “That’s An obvious question to ask but there is no ulterior motive here,” he says.