Being a longtime technology geek, I’m always intrigued (but not often impressed) by technology focused franchises. One segment that has seen fast growth lately has been the ink cartridge refill/replacement business.

Trends are important. Many printer manufacturers sell printers below cost in the hopes of profiting from lucrative ink sales. However, generic and private label inks of similar quality to the name brand inks are commonplace. Printer inks, like books or hard drives, have reached a commodity point where most suppliers of the product are of similar quality, so most competition ends up being on price. I would NOT want to be a small retailer where the low-cost seller wins, especially as a franchise where the inherent cost structures prevent you from being the lowest cost seller.

Franchisors like Cartridge World, Rapid Refill, Smart Cartridge, and Caboodle Cartridge will argue that market acceptance of off-brand quality inks is rapidly increasing, providing ample room for aggressive franchisees to capture a piece of this growing market share. While it is true that market acceptance is increasing, so are the alternatives. Office Depot, Staples, Office Max, and nearly all retail stores now offer generic or private labeled inks and cartridges at substantially lower prices than their name-brand counterparts (HP, Canon, Lexmark, etc.).

Internet retailers have matured to offer simple interfaces to locate the proper ink, with prices lower than franchise retailers with free shipping and no sales tax. Business (and many consumers) usually try to use a single source for all their office supply needs, including ink cartridges. Office supply distributors have adjusted to demand and now carry both generic and name brand inks as well.

The competition in this market is plentiful from all angles - big, small, and Internet retailers. Most franchisees will not have the resources to financially sustain operations in a highly competitive, commoditized environment. The puny advertising budgets of franchisees cannot efficiently compete. The cost per new customer acquisition and the cost to keep that customer will be high, and the convenience of the a one-stop-shop for all your office supplies, including ink, is substantial and usually insurmountable for the little franchisee. Therefore, I wouldn’t buy this type of franchise.

Now, it’s time to change my yellow ink catridge on my printer that I bought online for $2.25.

Update: April 13, 2006, 6:00AM

More competitor differentiations:

Will [franchisee] feels confident that Caboodles’ new approach to offering remanufactured cartridges is more attractive than the traditional model of refilling cartridges in the store [Rapid Ink, etc.] as the customer waits. Caboodle offers ink and toner cartridges that are professionally cleaned and refilled in specialized factories which assures much higher quality. Until now, cartridges were refilled in a hurry by the same store technician that had to handle many different cartridges. There was no time to properly clean and service the cartridge.

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