Ink-refill companies aim to take a chunk out of printer giant

GRAPEVINE, Texas — Every month, Mark Barnes used to buy $600 worth of new, name-brand inkjet and toner cartridges for printers that churn out a steady stream of contracts and marketing material in his real estate office.

But lately Barnes has been taking his empty tanks to a Cartridge World shop near his office, where he buys cartridges that have been refilled with new ink.

"I'm spending about $400 a month now," Barnes said. "I like doing other things with my cash."

Customers like Barnes represent a small but growing segment of printer owners who are buying private-label cartridges from refill stores and office-supply chains and plugging them into their Hewlett-Packard, Lexmark and Epson machines. They account for less than a quarter of U.S. printer ink sales, according to Lyra Research, which tracks the industry. But analysts say the number is certain to go much higher.

That poses a growing threat to the big manufacturers, who make more money from replacement cartridges than from selling printers.

Take Hewlett-Packard Co. In its most recent fiscal year, HP earned more than half of its $6 billion operating profit from its imaging and printing group. And some analysts believe that number understates the importance of ink and toner to HP because the imaging group includes printers, which HP sells at little or no profit.

HP doesn't break out results for individual items, but ink and toner "are both nicely profitable," says Pradeep Jotwani, the company's senior vice president of imaging and printing.

Name-brand ink cartridges can run $30 to $50, even more for some color versions. Toner cartridges can top $100. After a few trips to the store, consumers who bought inkjet printers and businesses that bought laser printers will usually have spent more on replacement cartridges than on the machine itself.

"You sell inkjets (printers) to sell them ink," said Cindy Shaw, an analyst with Moors & Cabot. "It's very much the razor-and-blade business model."

The printer manufacturers say their ink is better, and they point to independent researchers who have reached the same conclusion.

But Burt Yarkin thought the high price of name-brand cartridges left room for upstarts. A few years ago, he left a children's clothing chain to lead the U.S. division of Cartridge World Inc.

"The price of cartridges has not moved down at all over the years," Yarkin said. "If they give us their empty ink cartridges, we sell them a refilled one, and the savings are 30 to 50 percent." The price break on toner cartridges, which are more difficult to refill, is closer to 15 percent to 20 percent.