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.
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.
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.
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.
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 Caf 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.
|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 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, Epsons 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.