Article, Inkjet - "A $651,882 Barrel?"

Monday, August 24, 2009

A $651,882 Barrel?  Get in on the Ink Action

By Allen Luthy (SME)

Published August 2009, Recharger Magazine, World Expo edition

While the world agonizes over paying an Arab sheik $75 for a barrel of oil, very few know about the $651,882 a barrel that U.S. consumers are paying for high-priced ink in their inkjet printers.

 

There are more than one BILLION inkjet printers installed worldwide (approximately half of them in the US). When a consumer runs out of ink they are constantly purchasing new $40 replacement inkjet cartridges.  Companies like Hewlett-Packard (HP), Lexmark, Canon, and Epson are quietly exploiting the masses with the high cost for replacement ink.

 

Example:  HP recently released an updated version of a common inkjet cartridge in their “Value” line.  The HP 22XL (see picture) is priced at $44.99 and written in small print on the box it notes that the cartridge offers 0.37 oz. of ink. 

 

Let’s extrapolate:

0.37 oz. = 1 cartridge

128 oz. in a fluid gallon

128 oz. / 0.37 = 345 cartridges

345 cartridges x $44.99 = $15,521 ink per gallon

$15,521 per gallon x 42 gallons in an oil barrel = $651,882 per barrel!

 

Does Bernie Madoff work for HP?  Shouldn’t our government be protecting us from “Big Ink”?  Is there any way to “get a piece of the action”?  Actually there is. 

 

Despite the fact that there is a worldwide market of more than $33billion annually for consumable ink, refilling inkjet cartridges as a business is still a virtually untapped marketplace.  According to Lyra Research, nearly half the US population has never even purchased a remanufactured cartridge before. 

 

Most inkjet cartridge refillers can take a spent inkjet cartridge that otherwise would have gone into a landfill, inspect it, clean it, refill it (using about $1 worth of high-quality ink), print-test it and resell it at roughly half the price of a new cartridge.   What is there not to like about a clean/green marketplace with high margins and both the entrepreneur and the consumer happy?

 

 

What is your model? Find your Niche

 

There are all sorts of different cartridge refill businesses.  Whether one is buying into a franchise, adding a profit center to an existing business, es

tablishing a new start-up, or running an e-commerce site, each model has its own specific “best practice” methodology.  

 

Each of the following business models has their own success stories but to be best in class they each have three things in common:

1)     A flexible business plan

2)     Strong sales & marketing efforts

3)     High-quality finished product.    

 

Franchise route- Certainly the success of the cartridge refill chains like Cartridge World, Rapid Refill, Island Inkjet has been phenomenal over the past few years.  The largest, Cartridge World, has over 1700 locations worldwide and about 700 locations in North America.  Its growth has been tremendous; its first US stores were established only about six years ago.  Strong positives like a turn-key business with a history of success, quick start-up, built-in support group, and collective purchasing power, the franchise route is for those that are well-capitalized and more risk averse.  Some of the most successful franchise locations have revenues that reach nearly $1MM annually. 

 

Some negatives of owning an inkjet franchise are the high initial cash outlay (typically >$100K), future royalties, and regulations as to what you can/cannot sell in your own store.  Just owning a franchise is also no guarantee of success.  The top-performing refill stores don’t have the owner in the back room working on production—they are out establishing relationships and selling products. 

 

Certainly all business people needs to generate their own risk versus reward analysis.  According to often quoted Chamber of Commerce statistics, 86% of franchise businesses are still in business after five years while the Sloan Management Review noted that 30% of all non-franchise businesses fail within the first three years in operation.

 

Creating your own Kingdom

There are many “Go-it-alone” entrepreneurs who want to be their own boss.  An inkjet storefront business could literally be started anywhere: central business districts of cities, suburban strip malls, inside malls, small rural farm communities, etc.  Even the smallest of communities can support a business like this if coupled with other product offerings or services such as laser/toner cartridge consumables, mail services, computer /printer repair, coffee store, internet, etc. 

 

A fascinating evolution occurs with the brick-and-mortar storefront cartridge store.  Satisfied repeat walk-in customers nearly always provide avenues into other Business To Business (B2B) and government markets.  Everyone enjoys saving money, not just at home but at work as well. 

 

A Retail storefront start-up requires customer traffic and owner flexibility.  For example, last year a new cartridge refill store in the Chicago area called Ink Station established their business within three milesof two different colleges.  After gearing a large portion of their advertising and marketing efforts towards the students, they had sold over 600 inkjet and laser cartridges within the first 90 days—not a bad start considering that none of their new customers were actually students.  The store found that their initial customer demographics were primarily 40-60 year-old adults that lived within 2-3 miles of the store.  Once the marketing efforts were adjusted sales really took off. 

 

Adding in a new profit center like inkjet refilling to an existing business is ideal: there is already an established customer base, existing employees are better utilized (processing cartridges during slow times), on-site refilling becomes a new product destination site, increased customer visit frequency and duration, typically the equipment requires a very small footprint (4’x 4’), etc.  Generally equipment costs are amortized by selling only 1-4 cartridges per day. 

 

Certainly the natural partners for cartridge refilling revolve around those companies that support the office equipment and imaging sectors such as Value-Added Resellers, computer/copier repair, office supplies stores, etc.  Since inkjet cartridges are so ubiquitous, in-store refilling does not have to be a complimentary product to the existing business’ main product offering— pack and ship, drug stores, coffee shops, cell phone stores—all have high consumer traffic and are excellent locations for this type of refilling service.  

 

The two keys to a successful B2B are utilizing relationships and finding that unfulfilled niche. There are literally thousands of one-two person businesses that work out of their homes or a warehouse and supply product to a wide-array of businesses, school districts, and/or government agencies.

 

Just because a relative is the president of a Fortune 500 company doesn’t mean that their cartridge business is automatically attainable. Often times the largest companies have Managed Print Services or “cost per page” contracts already in place that do not allow product-specific cherry-picking.  Typically businesses with more than 20 employees purchase all their supplies and consumables from one vendor and removing the cartridges reduces the discounts on everything else.  

 

Without the existing relationships however there is a considerable amount of active selling required to build-up this type of business.  The unsupported market segment sweet-spot appears to be small businesses with fewer than 20 people where convenience and customer service will almost always trump price. 

 

Web-based businesses don’t require sexy salespersons to push the product—just an alluring website and strong SEM (search engine marketing) efforts that generate a large customer response.  There is no expensive building lease, no walk-in customer traffic, and little or no staff, all of which tie up precious time and/or capital.  For example, in 2006, an Ohio start-up (name withheld to protect their business model) established both a retail store and a strong web-site selling platform.  The business grew from zero sales to more than $30,000 per month in revenue in less than a year.  Their web-business revenues were so much stronger than their local sales that they shut down their store-front down altogether to focus all efforts on supporting their e-commerce sales.    

 

Not that easy?

Refilling inkjet cartridges well is not as easy as it looks. Anyone can squirt ink into a cartridge with a syringe but getting it to perform like a brand new cartridge with matching print quality and page yield is wherein the difficulty lies. 

 

For example, literally millions of consumers have purchased and tried the “Home Inkjet Refill Kits” that are sold in stores and on the web.  Relative to the number of kits sold there are very few repeat customers.  Why?  They are messy and the cartridges fail prematurely.  Even a cartridge that is chock full of ink may still fail after printing only a few pages.  What a paradox— the ink is there but just won’t come out.

 

Today’s inkjet cartridges are much more sophisticated than they were when first introduced in the late 1980’s when one could refill them with a syringe.  The cartridge dynamics have changed such that they require specialized equipment and multiple processing steps to produce an equivalent product.  However, this inkjet equipment has been available for several years now and is the reason why stores like Cartridge World and others have experienced such tremendous growth.  The secret that ties it all together is that professional equipment leads to a high-quality finished product.  High-quality product coupled with active selling gives a net result of: Exponential Growth. 

 

Conclusion

What is there not to like? The inkjet refilling business has it all:  A multi-billion product that nearly everyone needs, high margins, customers that are thrilled to save money, and a green “saving-the-planet” angle that recycles “trash” into treasure.  Individually there is not

much one can do ab

out the price of oil but if you are smart you can certainly capitalize on the high price of ink.