Cartridge World Franchise Information

Where to for Cartridge World?

Cartridge World is one of the big success stories in Australian franchising. Cartridge World specialises in refilling ink and toner cartridges, and from one small store in Adelaide they have grown to 1,000 stores worldwide in 9 years. Can this phenomenal success continue? Unless Cartridge World evolves, the answer is no. There are several reasons for this:

The OEM Manufacturers
The major printer manufacturers have a vested interest in making sure that refillers such as Cartridge World don’t succeed. HP, Canon, Epson and Lexmark make alot of money from printer cartridges, and although refillers have only a slice of the market this represents billions of dollars in lost sales. HP last year let off a warning shot over Cartridge World’s bows by issuing a warning that some franchisees were using inks that infringed HP’s patents. (More on this later in the article). Canon recently successfully sued a company which was refilling it’s cartridges. Epson has been stopping companies from making compatibles of it’s cartridges that infringe it’s patents (Cartridge World has it’s own line of compatible Epson and Canon cartridges).

Manufacturers are making it difficult for refillers in 3 other ways:
1) By placing chips and other proprietary designs on the cartridge to make it more difficult or time-consuming to refill cartridges;
2) By making the cartridges a lot smaller and a lot cheaper thus making it uneconomical to refill – for instance some new HP cartridges cost just $10 – and if you factor in the cost of labour, rent, franchise and advertising fees and utilities (plus the inevitable failures) the average Cartridge World franchisee would be lucky to break even when they refill one of these.
Other Epson and Canon cartridges are time consuming and difficult to refill. The newest Canon cartridges even let the printer know they have been refilled and if a user inserts refilled cartridges into their machine they are prompted with a warning message that says their warranty won’t cover damage by these cartridges, and the printer disables the ‘ink low’ warning which may result in the printheads burning out;
3) Creating vastly superior inks and toners that are difficult to replicate. For instance, toners used to be manufactured by making a ‘porridge’ of toner then drying it out and crushing it to a fine powder. This was very efficient, however this process resulted in toner particles which varied in size by up to 1000%, and particles which looked like chipped pieces of rock under a microscope. These days OEM manufacturers’ toner is made to the finest tolerances, and they have patented processes to make the particles a spherical shape. See an article here about the different processes. Presently replacement toner of such quality is difficult to obtain, resulting in print quality from newer type remanufactured cartridges being noticeably lower quality. Colour inks too are becoming more and more complex and difficult to duplicate. A lot of newer inks are covered by patents so anything close to the original just can’t be used to refill ink cartridges. Even though most ink formulations are covered by patent, at the time of writing Cartridge World stated on their site:

“We use premium inks that have exactly the same chemical and physical properties as the original inks. Our inks are specially formulated for your printer.” (my italics).

If the inks are exactly the same, Cartridge World can expect more warning letters not only from HP but also Canon, Epson and the rest.

The rise of digital photography
The fuel for the latest burst of activity in the printing industry is the huge growth of digital photography. Consumers are printing out literally millions of photos on their home printers and consumers demand photo quality prints. This requires not only quality ink but also quality paper. This market will continue to grow. Unfortunately Cartridge World has positioned itself on price, not on quality. The OEM’s have the upper hand here. HP, Canon and Epson all advertise that best printing results are achieved by using genuine inks and paper, and when people want to print photos they think OEM ink. While refill inks can produce brilliant prints if of a high quality, Cartridge World just doesn’t seem to have entered the digital printing world. None of the Cartridge World corporate websites even mention that printing quality photos is possible with their refilled cartridges. Cartridge World inks have not been tested for permanence by Henry Wilhelm. (09/06/2006 UPDATE: They have now been tested). Cartridge World does not mention that photo prints can be produced at half the price using their refilled cartridges. The corporation psych seems to have ignored the future of printing!

Color laser printing
Another strong growth area is color laser printing. Color laser printers have dropped substantially over the past 2 years and machines can be had for less than $500. However, this poses problems for Cartridge World. As their own website said:

“At present, continual research and development has yet to produce a toner which can be used successfully in the reloading of a colour laser cartridge.”

The reasons are here on a story about color laser cartridge refilling.

This will only cut into the “pool” of cartridges that can be refilled, reducing Cartridge World’s market further.

Competition
Cartridge World have been fortunate in that there is no real large scale competitors to their business. That will change of course. Caboodle Cartridge, although comparatively small with 44 stores, is set to expand because consumers don’t even have to wait for their cartridge to be refilled, they have ones on hand (edit: now closed down). And there are the big chains: Walgreens – opening ink refill stations at 1,500 of their stores; OfficeMax , installing 900+ ink refill stations across America; and Office Depot is trialling a similar ink refill service in 15 stores in Chicago.

Can the refill market grow to absorb these new competitors? While awareness can increase the refill market, the OEM’s will not tolerate losing market share – every 1% increase in refill sales hurts their sales by $3 billion. This is the real competition for Cartridge World – a squeeze on one side from new entrants to the refill market, and a squeeze on the other side from the big manufacturers (through upscaled marketing, deep discounting or legal action).

What to do?

Cartridge World will need to add value to avoid the squeeze.

  • As mentioned, digital photo printing is huge and marketing efforts, quality control and staff training can help Cartridge World become “digital printing experts”, offering a total print solution. A range of quality photo papers and displays of printed samples would make this an easy proposition to sell.
  • This one may be controversial as it may ruffle some feathers. Team up with a printer niche player such as Sharp, Xerox or Olivetti to offer a range of Cartridge World brand printers (with easy to refill inks and toners of course). With a large enough installed base this could be the product that ensures Cartridge World’s continued growth and survival. And what better salespeople are there than the ones already giving advice to customers about which printer to buy, and ink and toners?
  • Misc: Keep being innovative and staying ahead of the pack – use whatever means possible to differentiate itself from the competition. Build the technical skills of Cartridge World operators with training on a regular basis (not just 2 weeks at the start). Ensure standards are set out and stores are following those standards. Find out why the best franchisees are successful and apply that wherever possible to other franchisees. Encourage forward thinking at head office, who should be thinking about the state of the industry in 3-5 years time.

It’s been fun…
…dissecting Cartridge World. There is a comments box below, use it! I would especially love to hear from Cartridge World people. Do you think this assessment is accurate? Have I made any factual errors you would like to see corrected? I will approve all comments (except frivolous, repetitive or abusive posts). Cheers!

 

Update: In a March 2014 article, Chairman Rod Young laid out Cartridge World’s new direction. In effect, refilling has gone out the window and they have become a retailer selling home brand printer cartridges.

Whilst still touting their green credentials, it’s hard to see how their recycling process will work. There is no mention of where the recycled cartridges they collect will end up now that they aren’t refilling.

Is this enough differentiation to succeed in the market?  The competition in the printer cartridge market is fierce, with a low cost of entry and an efficient worldwide distribution system for both genuine and compatible cartridges. The market is fragmented with many small to medium players operating both locally and nationally. Cartridge World has never been able to compete on price on OEM products due to the 9 point charge to franchisees on gross sales revenue, now they may be facing the same difficulty with their own brand cartridges.

What could compound a drop in profitability is if, as the pictures on the linked page imply, franchisees need to open stores in high traffic areas with corresponding high rent and the need for floor staff and slow moving inventory. They will need to be nimble and fast acting to tackle the flexible online players. Whilst they have their own online offering, their website can only cannibalize sales from franchisees who don’t see the full profit from online purchases in their territory.

In their new model Cartridge World will need to focus on training their franchisees in sales and marketing to overcome the lack of added value they are providing  Рa daunting task.

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