Survey Shows Color Outsourcing More Common, In-House Production Still Important
Color remains both a growth opportunity and a challenge for the aftermarket, as evidenced by this year’s color survey. Offered at World Expo 2011, the results may be as much a reflection of the changing face of Expo attendance as they are an indication of change in the industry — but then again, those two things are often one and the same.
After a surge last year, in-house color toner cartridge remanufacturing is back down, while outsourcing both OEM and aftermarket cartridges is up. A variety of factors may be at play here — the aforementioned shift in demographic, for one, as fewer than half (44 percent) of respondents identified their primary business as remanufacturer. This was still the No. 1 choice, but much lower than the 65 percent in the 2010 survey and 56 percent in surveys collected at World Expo 2008. Fifty-eight percent of respondents, however, say they do at least some remanufacturing in-house, so although that question was not color-specific, it does indicate that remanufacturers are still a vital presence at World Expo.
Another factor affecting in-house production may be the currently challenging empties market, as a large percentage of respondents indicated that sourcing empties was a challenge with or obstacle to remanufacturing color cartridges. We’ll delve more deeply into these issues later in the article, however.
More than 220 people took the survey at World Expo 2011 in July compared to just 113 in 2010. The respondents were fairly evenly divided between U.S.-based and non-U.S. at 57 percent and 43 percent, respectively. This is a pretty standard ratio for surveys taken at World Expo, which is interesting in itself since World Expo overall demographics have been a fairly solid 30 percent international over the life of the show, meaning a higher percentage of international attendees typically choose to take the surveys.
We also added some new demographic questions this year and adjusted some others to gather data on the evolution of the industry. The largest percentage of respondents (83 percent) said they sell remanufactured toner cartridges purchased from an outsourcer, while more than 60 percent reported reselling OEM toner cartridges as well as aftermarket and OEM inkjet cartridges (respondents were able to choose more than one type of activity in this question). Interestingly (although perhaps not too surprisingly), while 39 percent of overall respondents said they sell managed print solutions, none of those who indicated they remanufacture color cartridges in-house offer MPS.
The most recent I&A articles based on the color survey ran in October 2010, which drew on the information garnered from surveys taken at World Expo 2010; and in April 2009, which was based on data taken at World Expo in August 2008 (the survey was not offered in 2009). For clarity’s sake, these prior surveys will be referred to as “last year” or “2010” and “2009,” respectively. The color survey has been offered since 2005; that year, it was offered online as well as by mail and fax (really!). The 2006 survey was online only, and the 2007 survey was taken at World Expo 2007. For obvious reasons, it is more difficult to assume an apples-to-apples comparison with the 2005 and 2006 surveys, but references to all of them may be made on occasion when warranted.
1) Does your company remanufacture color toner cartridges in-house? How many years has your company produced color toner cartridges?
After one year in the majority, in-house color remanufacturing falls back into the minority, with only 34 percent of respondents saying they produce color toner cartridges in-house. This is a sharp decline from last year’s 59 percent and even from 2009’s 48 percent, and in fact, it’s more in line with numbers we saw in the earlier years of the survey: 38 percent in 2007 and 2006, and 33 percent in 2005. See Figure 1.
Part of the reason for this may be seen in the second part of the question, which asked how long respondents have been producing color cartridges. The “three to four years” category saw a huge increase, from 17 percent last year to 39 percent this year, and 65 percent of respondents said they’ve been doing color for between three and nine years (only 40 percent said the same last year). Meanwhile, the “more than 10 years” group took a nosedive; after jumping from 6 percent in 2009 to 30 percent in 2010, that number dipped back down to only 9 percent this year. Are veterans getting out of color production? Is this a result of consolidation, increased outsourcing or other challenges? On the other end of the spectrum, the number of new entrants to color production — the “less than one year” group — almost doubled from last year’s 7 percent to 13 percent this year; it’s still not a high number, though — more in line with 2009’s 15 percent and significantly lower than 2007’s 29 percent. See Figure 2.
2) What percentage of the total toner cartridges you produce are color?
The people who do color are doing more of it — a steady trend for several years now. For the first time, more than half of respondents — 56 percent — said that 21 to 40 percent of their overall toner cartridge production was color. Last year was the first time that category was the most popular, at 41 percent; it was a far distant second in 2009 and 2007 at 17 percent and 24 percent, respectively. The leading category in those years, 1 to 20 percent, was a distant second this year at 19 percent. Last year, it was a much closer second place at 35 percent, and in 2009 and 2007, it was the runaway leader at 57 percent and 70 percent, respectively. So as color machine placements become more common, those who do produce toner are keeping up with demand, dedicating more and more of their production runs to color cartridges. See Figure 3.
Overall cartridge production numbers seem to be increasing as well. This is a qualified statement, since last year’s survey seems to have been taken by a few very large remanufacturers, which skewed the results significantly; the average number of cartridges produced per month by 2010 respondents was 54,116 compared to 5,451 this year and 5,417 in 2009. Looking at the median number gives us a slightly more realistic indication of the trends; the median was 50 in 2007, 100 in 2009, 200 last year and 1,000 this year. A big jump, granted, but as the numbers have doubled ever year prior, it doesn’t seem to be out of line, particularly with so many more respondents saying color cartridges make up a larger part of their production totals.
3) How has your in-house color toner cartridge production changed in the last two years?
Sixty-two percent of respondents said their color cartridge production has increased, which is a lower percentage than the 81 percent in 2010 or 74 percent in both 2009 and 2007. See Figure 4. While this response doesn’t seem to be in line with the responses to the previous question, which show that, overall, respondents that do produce color are doing more of it, there are some variables to look at — namely, consolidation and the two very turbulent years represented in this question, which are roughly 2009 through mid-2011. A pretty consistent trend at World Expo over the last few years is that a remanufacturer who was present and took the survey one year has been bought up by another company the next year, changing the number and size of companies that remanufacture cartridges — evidenced by the drop in respondents who report producing color in-house we saw in the first question. We also need to look at the average increase. The average percent increase for those who said production had grown was 47 percent — much higher than last year’s 27 percent and 2009’s 39 percent. In fact, it’s the highest number we’ve seen since the prerecession 2007 survey, which showed an increase of 59 percent. So once again, we see consistency in the idea that a smaller number of companies are doing color, but those companies are doing a lot more of it.
And production across the board isn’t decreasing; rather, more companies are maintaining the status quo. Nine percent of respondents said production had decreased over the last two years compared to 8 percent last year and 2 percent in 2009. On the other hand, 29 percent said production had remained the same — more in line with 2009’s 24 percent and 2007’s 26 percent than it is with last year’s 11 percent. When we drill down to the group that states color makes up 21 to 40 percent of its production runs, 36 percent of that group reports that its color production has stayed the same. Again, we have to look at the two years represented in this question. Lyra reports revenues on Segment 1-3 color MFPs dropping by $200 million in 2009, and a June 2010 survey of U.S. office users conducted by Lyra Research showed that one-third of respondents had printed fewer color documents over the last year because of economic conditions.
A reasonable question to ask is in what ways the continued rise of managed print contracts are affecting color usage. Color machine shipments are still rising, certainly, and the majority of offices have at least one color machine, so there is an obvious need for color cartridges for those machines — but of course, one of the goals of many MPS systems is to cut costs, often through eliminating or limiting unnecessary color printing.
4) Does your company remanufacture color inkjet cartridges in-house? How many years has your company produced color inkjet cartridges?
Color inkjet cartridge production has, for the most part, continued to increase at a slow but steady rate since the inception of the color survey. Forty-six percent of respondents say they produce color inkjet cartridges in-house, up from 43 percent last year and 34 percent in 2009. The 2007 figure was 36 percent, a slight decrease that could still be defined as “steady,” and 2006 and 2005 numbers were 25 and 16 percent, respectively. Interestingly, this increase has finally put inkjet production ahead of toner production, with more respondents producing inkjet than toner in-house. See Figure 5.
We see more longtime producers of inkjet in this year’s survey as well; unlike toner, veteran inkjet producers seem to be staying in the game. Forty percent of respondents have been doing color inkjet for more than five years, with 30 percent indicating they’ve been doing them for 10 years or more. New entrants into the inkjet business have stayed steady over the last few years; 10 percent of respondents said they’ve been doing inkjet for less than one year, which is the same percentage as 2009 and nearly the same as last year’s 9 percent. See Figure 6.
5) What percentage of inkjet cartridges you produce are color?
Color inkjet production percentages are much less evenly distributed than they have been in past years. Almost all respondents — 90 percent — say color inkjet makes up between 21 and 60 percent of their total inkjet production. The other 10 percent say color makes up 81 to 99 percent of their inkjet production. While it’s not entirely surprising that no respondents said color accounted for 100 percent of their production — only 5 percent in 2010 and 2009 chose that response, and zero chose it in 2007 — it is a little odd that there were no takers for the smallest category, 1 to 20 percent (15 percent in 2010 and 6 percent in 2009), or 61 to 80 percent (17 percent in 2010 and 12 percent in 2009). See Figure 7. Since the 41 to 60 percent classification and the 81 to 99 percent group stayed fairly steady compared to previous years, it seems that while more companies are producing color cartridges, the overall percentages of color inkjets are declining — an assumption that’s given credence by the answers to the next question.
6) How has your in-house color inkjet production changed over the past two years? How many color inkjet cartridges do you produce in-house each month?
An equal number of color inkjet remanufacturers have increased and decreased production — 40 percent each — while 20 percent say production has stayed the same. This is a huge change from previous years; in 2010, 86 percent said they’d increased production, while only 5 percent stayed the same, and in 2009, 65 percent increased, although 22 percent stayed the same. See Figure 8.
That decline in production numbers is reflected in the average number of cartridges produced in-house; however, as with most categories, averages can be deceiving and are easily skewed by a very large or very small producer. The average number of in-house inkjet cartridges produced this year was 3,652 — a vastly lower number than we’ve ever seen in the survey — and the numbers have varied wildly; last year’s average was nearly 200,000, while in 2009, it was just over 18,535, and in 2007, it was 57,298. The numbers are a little more logical when we look at the median number of cartridges produced — 1,000 — which is the same number as 2009 but down from 2010’s 2,000.
7) What are the challenges with producing (or the reasons you don't produce) color cartridges in-house?
Expense/profit margins topped the list last year for the first time, and apparently, it’s only become a bigger barrier this year. For the first time, more than half of respondents — 55 percent — said this is the biggest challenge when it comes to producing color. Last year, 46 percent of respondents chose this answer; in both 2009 and 2007, it was 31 percent in a much more evenly distributed field of answers. At a close second place was “quality aftermarket components” — the first-place choice in 2009 at 39 percent, which dropped to 27 percent in 2010. It’s possible that this choice is connected to the difficulty with sourcing empty cartridges; not surprisingly, this choice jumped to 35 percent — the highest it’s ever been in the history of the survey. Rounding out the field were “quality aftermarket ink/toner” at 30 percent (20 percent last year, but 29 percent in both 2009 and 2007) and “technical knowledge” at 25 percent (also 20 percent last year, but 31 percent in both 2009 and 2007). It seems that the industry is becoming more educated and comfortable in its knowledge, at least. See Figure 9.
8) Do you resell aftermarket or OEM toner cartridges?
As we’ve speculated throughout this article, outsourcing is becoming more and more common, with many companies finding it simpler, more practical or more cost-effective to outsource at least some color cartridges. The percentage of respondents outsourcing aftermarket color cartridges continues to grow, reaching 73 percent this year from 64 percent in 2010 and 56 percent in 2009. Reselling OEM cartridges took an even bigger jump — 86 percent this year from 49 percent in 2010 and 62 percent in 2009. Of course, the question isn’t exclusive; it’s a safe assumption that most companies are selling some of each. It’s not uncommon for resellers to carry both OEM and aftermarket cartridge lines to meet a variety of customers’ needs. See Figure 10.
9) Do you resell aftermarket or OEM inkjet cartridges?
Like toner, inkjet outsourcing took a big jump this year in both OEM and aftermarket categories, with approximately three-quarters of respondents saying they resell both. The percentages were more even in previous years, with 54 percent of respondents in both 2010 and 2009 saying they were aftermarket resellers, and 44 and 58 percent in 2010 and 2009, respectively, saying they sold OEM cartridges. See Figure 11.
Another big change from last year is the number of respondents who do not resell any cartridge types. In 2010, 26 percent of respondents selected “no” for all four questions. This year, more than 90 percent of respondents replied “yes” to at least one of the questions, and most selected more than one. Cartridge reselling is definitely on the upswing this year, likely for the many reasons speculated throughout this article.
10) What best describes the color market for your company?
It seems that color will always be a small but growing part of most companies’ business. That answer was the top choice this year at 32 percent; in both 2010 and 2009, 30 percent of respondents selected that answer. In 2010, however, the No. 1 answer was “important part of our business but not our main offering” at 39 percent. This year, that response was chosen by just 23 percent of respondents; in 2009, 28 percent selected that answer. Interestingly, there was an increase in both respondents who felt color was the smallest and largest opportunity for their business; 22 percent selected “small part of our business and will probably remain that way” — up from 8 percent last year — and 14 percent selected “biggest sector of our business” — again up from 8 percent last year. These numbers are more in line with 2009’s responses of 17 percent and 13 percent, respectively. See Figure 12.
There’s no doubt that color remains a challenge and an opportunity for the aftermarket. While many are turning to outsourcing, others continue to enhance their technical resources and in-house capabilities. Regardless of the path you choose, this segment of the market isn’t going away, so finding a way to meet demand is an important key to success.
This article originally appeared in the October 2011 issue of Recharger.