The Sunshine Economy: Competing In The Global Mask Market From Miami
COVID-19 vaccines may be coming, but there remains big demand for personal protective equipment like masks, especially N95 masks. South Florida manufacturer Demetech has pivoted during the pandemic to compete in the global mask market.
Within three days in March, two of the biggest voices in health care recommended U.S. hospitals to stop performing any surgeries that weren’t absolutely necessary. It set off a chain reaction with almost three dozen states restricting or banning procedures — that included Florida.
It was March, the pandemic was just beginning to take hold and the ban on surgeries was an effort to keep hospital beds open in case of a surge of COVID patients.
Stopping surgeries meant the demand for surgical needles, mesh and sutures collapsed. That was the core business of Demetech.
The company had been growing almost uninterrupted for 20 years, expanding into more than 100 countries from its Miami Lakes headquarters.
And then, like countless companies, it pivoted thanks to the pandemic. Surgeries may have been on hold, but the need for personal protective equipment skyrocketed, especially for N95 face masks — the gold standard of face masks.
Demetech borrowed and invested millions of dollars to make masks.
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It would take a few months. The company began the process of designing and making masks in March. In July the FDA certified its surgical mask, and in October Demetech’s N-95 mask was certified by the U.S. Centers for Disease Control’s workplace safety department.
The company created a new business line and, along with it, had kept its 300 workers employed while adding hundreds of jobs.
"That was our goal — keep our workers working," said vice president Luis Arguello Jr. "We've on-boarded about 1,000 [new employees] for the PPE side."
Almost overnight, global demand for face masks, gloves and gowns eclipsed supplies. As the pandemic took hold across the world, governments, hospitals and just about everyone was on the hunt for protective gear and finding American-made equipment was difficult.
"There's two markets," Arguello said. He pointed to U.S. brand names like 3M and Honeywell. This is the market Demetech includes itself with in producing certified masks. "And as a consequence, these things have a higher price."
Less expensive equipment, usually made in Asia, is what Arguello considered the second market.
"Ultimately, [it)]comes down to — does the product have a quality system that is assuring that the filter works or doesn't?"
Arguello estimates American-made N95 masks is 20 to 30 percent more expensive than Chinese-made gear. It's a little higher for surgical masks.
In August, President Donald Trump issued an executive order urging federal agencies to buy American-made PPE. Three months later,
a third of Florida hospitals have less than a week’s supply of N95 masks, surgical gowns and gloves according to the weekly White House Coronavirus Task Force report from the first week of December.
The federal government is Demetech's largest buyer of its masks, and its pushing local and state governments to follow, as governments await any new federal stimulus spending.
As Demetech has ramped up production, costs have gone down. It said it is making more than 100 million masks a month. But the cost to attract factory workers has jumped.
"Many people are afraid to work in a factory setting," Arguello said. The company's base-line hourly labor costs have gone up "between 50 percent to 100 percent."
TRADITIONAL BUSINESS AND THE FUTURE
Over the past 20 years, Demetech has grown into an international supplier of surgical supplies like sutures, mesh and needles from its base in Miami Lakes. It saw that market come to a virtual stop in the spring when so many areas restricted surgeries in the effort to save hospital beds for COVID-19 patients.
"Initially it scares you, right?," said Arguello. "It would be a lie to tell you that it didn't. But ultimately, I think that we felt fairly confident that that the surgeries would restart again."
The temporary ban means sales of these products will be down about 30 percent this year for the company. But the business has bounced back over five months, helped by pent up demand. "Almost normal" is how Arguello describes Demetech's traditional business 10 months into the pandemic.
The lost revenue from the springtime drop of surgical supplies sales has been made up by the company's pandemic pivot to masks. And it is plowing those profits into expanding PPE manufacturing capacity. It paid $15 million for a Miami Lakes warehouse in November.
"Everything is being reinvested," Arguello said.
The company has also borrowed money to help fuel its growth. And it is confident the PPE demand will continue even as vaccines begin to be distributed. Arguello said Demetech will soon begin making gloves and gowns, too.
"We are firm believers that health care sector will probably change the way it uses PPE forever," he said. "It's a matter of being prepared and having the products available and made in the U.S. for when those catastrophes happen. We have the production here instead of having other countries hoard the supplies."