Every consumer would agree that the hidden costs of printing in cartridges,
toner ink, and other consumables far outnumber the actual printer costs.
Consumables are the lifeline of the printer market, but not often fashionable
enough to interest analysts.
Sizing the Market
The size of the consumables market, comprising inkjet cartridges, laser toners,
and ribbons for dot matrix and line printers, was pegged at around Rs 1,940
crore in FY '08, recording an annual growth of 68% from the previous year. From
an installed base perspective, inkjet cartridges enjoyed 46% market share, while
laser cartridges had about 36%. The balance 18% constituted supplies for dot
matrix and line printers, and drum printing.
Translated into revenues, laser cartridges, however, accounted for around Rs
1,100 crore while inkjet cartridges contributed Rs 800 crore (attributed to
lower prices of inkjet cartridges). The share of dot matrix, line and thermal
printer consumables declined, as they catered only to a niche market.
Reduced prices of laser printers fuelled its adoption, and further led to the
laser toners' market growth of 10%. Larger players like HP, Samsung, and Xerox
introduced new range of affordable laser printers giving more impetus to the
laser toners market. The inkjet printer market, on the other hand, has grown by
almost 5-6%, with a surge in demand from the SOHO, home, and education segments
for photo printing.
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Existing inkjet printer users gradually transitioning toward entry-level
laser printers marked the burgeoning laser catridges market. And, therefore,
HP, Canon, and Epson, which largely dominate the inkjet cartridge market, are
also gearing up to cater the growing laser cartridges market.
Rising OEMs
The consumables industry has always followed the razor-and-blade model,
where over a period of time, the latter costs higher than the former. The key
industry players have been taking advantage of this set-up, with consumables
serving as the silent cash cow. However, the scenario is slowly changing with
some key OEM vendors trying to strike a balance between printers and
consumables cost by correcting their pricing strategies and introducing new
technologies. This in turn has the compatibles market thinking of newer ways
to formalize their business and maintain lead.
In FY '08, the OEM vendor cartridges had about 43% market share at Rs 834
crore, while compatibles (includes refillers, remanufactures, and compatibles)
had a 52% market share at
Rs 1,009 crore. Within the compatibles segment, refillers accounted for half of
the overall share, while the share of pure-play compatibles declined to 2%. The
growing share of OEMs and refillers impacted the gray market or counterfeits,
which declined to only 5% of the market share at Rs 97 crore.
The branded Goliaths ruled the roost once again. HP dominated the market with
almost 60% market share, followed by Canon, Epson and Samsung, each with about
10%. Other established vendors like Xerox, Lexmark, Minolta, Kores, Samsung,
Brother, and Kodak together made up the remainder.
Changing Dynamics
In a scenario of a maturing Indian market, the compatibles did not do as
well as refills. The rising demand for laser toners and the convenience of
refilling them to maintain quality was an important contributor to the growing
refillers market. Even now, compatibles players are able to sell good quality
cartridges at a cheaper cost, as the organized parts suppliers such as Static,
Uninet, and Future Systems, based out of Europe, Japan, and the US,
respectively, were able to provide cutting edge technology to the Indian market
at lower costs.
However, these cartridges have now lost their market share to Chinese
cartridges. While quality remains inferior to the European part suppliers,
Chinese cartridges are extremely low priced. In the bargain, quality products
are losing out, which is affecting the compatibles segment on the whole, and
resulting in its declining market share.
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Worldwide, cartridge remanufacturing is an
established industry with players like Xerox, IBM, NCR, Staples, Wal-Mart,
Cartridge World, etc, holding approximately 30% stake in the market. The
digital imaging supplies industry is over a $101 bn globally. Out of
which, 65% is ink and toner and the balance is paper and other consumables |
On the other hand, the gray market and counterfeits affected the OEM
business by only 10-15%, and compared to the growing prominence of refillers
and remanufactures, they are not a big cause of worry.
Last year saw the formation of Cartridge Recyclers and Traders Association (CRTAI)
and ICCRA for the unorganized sector to unite recyclers and re-manufacturers of
cartridges, and to gain a legal entity for their business. Also, Australia-based
Cartridge World brought its franchisee business model to India and opened about
thirty outlets across the country. Cartridge Café is another retail outlet that
will follow the franchisee model, and has plans to open at least 100 stores in
six months in India. The objective of these retail players is to provide high
quality refilling without tampering with cartridges.
On a Promotion Drive
Now that the organized players have entered the fray, vendors like HP are
going all out to promote its own consumables, than lose its turf to companies
like Cartridge World or Cartridge Cafe. HP is carrying out a huge marketing
campaign highlighting that its cartridges last more than a refilled or recycled
cartridge.
HP is also investing almost $1 bn globally into its consumables business
every year to improve its products and increase technology patents. It has
increased the number of retail points across India to 1,500 out of which about
1,200 are HP original cartridge stores. It has also launched an enhanced
availability portfolio around 'Dial-a-cartridge' and 'Email a cartridge'
services to seventy-four cities across India.
It has also embarked on a Best Choice Portfolio so that customers can choose
different kinds of cartridges depending on their needs. For eg, students who
want to take draft printouts can use the everyday cartridge launched by HP
recently, that costs only Rs 399 compared to the premium black cartridge that
costs around Rs 900.
According to Canon, counterfeit products eat into almost 50% of its
consumables market share. Hence, it has taken numerous initiatives to educate
the consumer and provide them tools like Trustgram to help expose bogus
cartridges. Similar to HP, it has offered consumers to order cartridges online
through its COOL initiative. To overcome the price barrier and encourage the use
of genuine consumables, Canon has recently launched a new program called, Smarty
Cartridge, which aims at introducing economical cartridges to consumers and
prevent them from using refills or compatible cartridges.
Epson too is focusing more on inks because almost 80% of its consumables
business comes from the inkjet cartridges market. In a significant move toward
making cartridges more affordable, Epson has launched inkjet cartridges priced
at Rs 250, and at the same time providing consumers the advantage of replacing
only the colors that are empty rather than replacing the entire color cartridge
or toner.
In fact, Epson's consumables business grew by 32% last year over FY '07. It
has also seen a growth in its genuine user ratio, which went up to 44% for
entry-level cartridges. It also saw good traction in photo cartridges, which
proved to a key growth area. Epson opened up its channel network, consolidated
all its partners and moved from a regional to a national distribution strategy.
The War Continues
With Indian consumers focusing mainly on value, ie, the cost per page
printed, the compatibles and refilled cartridges did well over the past few
years, as they were priced almost 30% lower than OEM cartridges. However, with
all major vendors having introduced low cost cartridges and enhanced
availability of products, consumer preferences are swinging toward original
cartridges.
Government organisations such as MAIT and the Central Vigilance Commission
are issuing guidelines to the government and PSUs for following certain
processes while purchasing consumables and are promoting OEM cartridges. On the
other hand, the environment ministry has appreciated the efforts of the
refilling industry and the associations such as ICCRA and CRTAI are looking at
converting refillers and remanufacturers into an organised industry by setting
certain standards.
With such differing views on the genuineness of consumables within the
market, there seems to be no end to the ongoing war unless authorities take a
firm stand and set stronger benchmarks. Whatever may be the outcome, the
consumables segment will continue to be a margins mainstay for the printer
vendors and serve as a secret lifeline.
Priya Kekre
priyak@cybermedia.co.in