EXCLUSIVE: Why Cartridge World Thinks the Aftermarket DOES Have a Future!

Why the Aftermarket DOES Have a Future!
Rod Young, Global CEO, Cartridge World

When Cartridge World was established as the Australian Cartridge Company in 1988 it was about the time when most of the printer cartridges purchased across the globe were manufactured and distributed by the original equipment manufacturers (OEMs).

Take-up of technology was accelerating and every home and business needed a printer or two or more. This was creating a river of black gold for the printer manufacturers, as the “razor blade” business model, where once the consumer chose the device, the ongoing supply of consumables locked the customer into that supplier for the lifetime of the product.

It was a license to print money for the OEMs!

Enter Cartridge World
Cartridge World founders developed their skills in not only refilling these OEM cartridges but marketing them direct to the consumer through a network of retail stores. Thereby, a new “recycling” industry was born.

These cartridges were mostly ink and were fairly low tech when compared to the latest ink and toner cartridges today. Refilling fresh virgin cartridges was a joy as the process was easy, virtually anyone could do it, and the margins were exceptional. Indeed, it was a true double win—a win for our franchisees and a win for their customers.

The customer got a good quality product, and felt good about recycling, and our franchisees made good margins as their cost of goods was just a few milliliters of ink and literally a few minutes of their time.
A New Industry
Since 1988, a whole new recycling and manufacturing industry has emerged. What started as local handymen refilling cartridges brought to them by consumers has bloomed and flourished into a global commodity and manufacturing industry with many facets.

Cartridge World rode the growth of the recycle and refill market and has surfaced as the global leader in market presence with over 1,400 stores in 50 countries. Along the way this has spawned many “lookalikes” which used the Cartridge World business strategy of retail workshops and franchised owner operators to create their own version of the Cartridge World business model.

But retail stores are only part of the story. As the refilling market developed several further trends emerged. One was that the value of empties was realized, and the empty cartridge has become a global commodity creating collection, sorting, grading, and transport logistic businesses. These empties are now traded around the globe.

Another trend has been the development of hundreds of factories which compete in the market to buy these empties and have been established to clean, refill and later reset chips or re-chip cartridges.

Still another trend was the emergence of an aftermarket parts industry to provide components to refillers and remanufacturers.
A further trend is the distribution of refilled cartridges from these factories not just to resellers, but to contract suppliers of managed print services (MPS) who are seeking to increase their margin by substituting compatible components for OEM products in their MPS offerings.

The profit motive also attracted illegal activities such as counterfeiting, product substitution and patent infringement. These counterfeits, repicas and clones must be recognized by the industry before they can be driven from world markets.

OEMs Respond
However, as the market opportunity that was created by this refill solution was exploited by more and more entrepreneurs around the world, the printer manufacturers soon understood the threat to their future revenues and began to develop new technologies which were designed to frustrate this emerging industry.

OEMs have patent protected technology and they have invested, and still invest, many millions of dollars in developing processes of setting ink and toner onto paper.

This technological capability was harnessed to design printers and cartridges which made refilling more difficult and to increase the range of printers and cartridges which added to the complexity of the refillers’ business.

Chip technology emerged to manage not only grey imports and maintain global market segmentation but also to add further complexity in the refilling of these cartridges as this introduced the opportunity for the cartridge to talk electronically to the printer.
The Internet has also created a new weapon to prevent refilled cartridges from working, as the communication capability between the OEMs and the printers and cartridges they manufacture became possible. Software installed in printers can be updated and the OEMs are using this technology to monitor and manage cartridge behavior.

OEM’s are also protecting their IP rights through stricter enforcement and litigation to prevent illegal products from reaching the market.

A Legacy of Quality Issues and Provenance
Industry statistics now indicate that about 20% of all cartridges consumed around the globe are refilled. After significant growth the industry has now peaked and the future of the refilling industry is at a crossroads. Why? Because this market share has come with a legacy that no-one in the industry should be proud of. Consumer research clearly shows that the consumer perception of refilled products is that these cartridges lack quality and reliability. What is more sobering for our industry is that unfortunately, in many cases this is also the reality.

Counterfeit and patent infringing products are being manufactured and distributed to often unwitting consumers and many vendors are promising OEM quality which is not being delivered.

The result has been an industry that has overdeveloped its capacity at the retail, distribution and manufacturing levels and underinvested in refilling and remanufacturing quality control protocols. What we are seeing is a shakeout after a long run of growth.

Does the Aftermarket have a Future?
For Cartridge World, the answer is an unequivocal “YES!” Our reasoning is very simple. A lack of quality has led to poor consumer perception that has blunted demand for the products of many suppliers. However, the printing consumables market for ink and toner products is substantial and valued at about $80 billion. Therefore, there are significant opportunities to take a share of this market if we can deliver on quality. There are millions of printers in the global printing fleet that have cartridges that are capable of being legally refilled or remanufactured to a quality standard that can meet or exceed the OEMs specifications and the consumers’ expectations.

Further, emerging markets in the high population growth areas of India, Asia, Africa and South America will see an expanding demand for our Cartridge World branded products and services. We have a Global Development Executive who is leading our selection of appropriate Master Franchisee partners into these new markets.

We know there are manufacturing, refilling and recycling techniques provided by our stores and our approved remanufacturers which when coupled with a rigorous quality testing and assurance program can result in a supply of patent-free, high quality cartridges delivering excellent print quality and reliable performance.

Cartridge World is being approached by suppliers who see our growing distribution footprint and have a quality standard or breakthrough that we seek. In addition, we have a core group of cartridge remanufacturing companies and suppliers working closely with Cartridge World to develop technologies, procedures and processes that result in the production of cartridges which meet our CW Product Specification program.

Finally, the Cartridge World supply chain has developed an individual product register that can track every cartridge throughout its life cycle to monitor quality.

In summary, there is a huge opportunity in the cartridge aftermarket just as there is in the automotive and other manufacturing industries across the globe.

We are seeing a shakeout in our own business and certainly that of others in the industry who are either in denial about quality or who simply are incapable of meeting today’s consumer expectations. The “gold rush” is certainly over and the uncommitted and opportunistic have failed, are being sued, or are leaving the industry at their own discretion.

This consolidation will normalize the marketplace and set the foundation for long term growth. Those committed to offering a quality product and reliable service at a reasonable price have the world at their feet. The challenge today is one of integrity, quality, reliability and service.

As time has clearly shown, Cartridge World is here to meet that challenge!

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