Much is hidden in Korea’s mask market

Industry

Published: 09 Feb. 2020, 18:31

Much is hidden in Korea’s mask market

Tourists trying to bring masks back to their country go through customs on Friday at Incheon International Airport. Under a new government regulation announced Friday, passengers carrying fewer than one thousand face masks are obliged to file an export declaration on paper at the airport. Those carrying more than one thousand must consult with a licensed customs agent and make a digital report to customs. [NEWS 1]

Fear of the Wuhan coronavirus has cleared shelves of face masks. Demand has been so high that mask companies saw an increase in sales close to 2,500 percent, according to Enuri, a local website that compares the price of goods.

Masks certified as Korea Filter (KF) - designed to protect from dust or infection - are in particular demand.

“Plain cotton masks are in less demand compared to the KF-certified masks, given that the cotton masks don’t have filtering functionality,” said a spokesperson for TMON, an e-commerce platform.

“Cotton masks sell but not as much as KF ones,” the spokesperson said

With shortages freaking out the public, the government stepped in Tuesday, saying it would tighten controls on exports to prevent masks leaving the country.

This has given rise to a simple question without easy answers: Why are consumers finding it hard to get the masks they want?

In Korea, there are 1,062 types of masks approved by the Korean Food and Drug Administration. Everyday, 123 companies are producing 8 million masks with KF levels above 80. As of last Tuesday, 31 million masks are sitting in inventory, according to the Ministry of Health and Welfare.

Before the coronavirus outbreak, masks were not a sexy business. They were a seasonal item that saw demand for only three months in the early spring.

Masks stopped at customs are piled up in the customs office of Incheon International Airport on Thursday. The government initiated a crackdown on illegal hoarding of masks for the purpose of sending them out of the country. [NEWS 1]

However, the market for masks has grown a lot recently, from 15.2 billion won ($13 million) in 2016 to 33.7 billion the following year. The market gained momentum in 2018 due to heightened public awareness of fine dust from China

Due to its small market size and razor-thin profit margins, masks were considered a product consigned to small- to medium-sized businesses. Most churn out 50,000 to 200,000 masks everyday. Big-name brands such as LG Household & Health Care, Yuhan-Kimberly, Donga Pharmaceutical, Monalisa and Ssangyong Paper are not manufacturers but distributors. They rely on small manufacturers, such as KM, YJ and the Korean arm of 3M, to name a few.

Distribution mystery

Around eight million masks are produced everyday in Korea, which retail industry analysts say is enough for the population. The supply is expected to grow as the government announced Monday a ramping up of the daily production volume to 10 million. However, how distribution works is a bit opaque since the business involves so many producers and distributors. It’s hard to keep track of exactly how many are distributed and where.

The situation is particularly muddled now as wholesalers from China tried to secure mask supplies before the yellow dust season.

Then came the Wuhan virus.

Monalisa, a company that produces daily necessities, sourced 6 million masks last year through a subcontractor. Since it had leftover inventory from last year, the company decided to order less this year.

“Usually, we don’t secure a lot of inventory for masks, since it’s a seasonal product sold for only three months every year. The masks are currently out of stock, but [since we did not plan in advance], we can’t place any new orders right now,” said Lee Doo-hyeon, marketing director at Monalisa.

The situation is similar for other final vendors that rely on small manufacturers for their supplies of face masks.

“Even before the coronavirus outbreak, mask manufacturers would keep important information - like the amount of supply - to themselves to prevent competitors from manipulating prices. Even now, we are completely blind on how much demand for face masks has increased in the market,” said an official from LG Household & Health Care.

To narrow this information gap, the Ministry of Security and Public Administration stepped in last Friday with a set of measures to ensure transparency in the distribution chain and prevent people from hoarding face masks and hand sanitizers in hopes of profiteering later.

Under the emergency measure, manufacturers and wholesalers of face masks and hand sanitizers are obliged to report their buyers, unit prices and exact inventories to the Health Ministry.

Cut-throat competition

Between Jan. 27 to Feb. 2, a daily average of 530,000 masks was sold in Emart stores, 30 times larger than the amount sold last year. The discount chain failed to keep up with demand and eventually put a cap on the number of face masks available for sale.

Shortages are inevitable, industry insiders say, considering how face masks are distributed to big retailers.

For years, face masks were considered an unimportant item for big retailers like Emart, and they partnered with one or two manufacturers to source supplies. Face masks were considered less important than other items for inventory managers, as the demand was concentrated in only for three months every year.

An unexpected demand change took the stores by surprise. There are hardly any merchandising directors responsible for face masks.

The distribution chain experienced a bottleneck, as greedy vendors snapped up face masks in the distribution chain. Some manufacturers refused to source masks to vendors at the last minute. Chinese merchants put up piles of cash to buy masks in bulk.

The situation is improving following strong threats from the government and purchase limits set on customers by retailers. Emart increased its purchase cap last Tuesday to 30 face masks per customer. Online retailer 11th Street said it secured 500,000 masks through direct purchases from manufacturers.

The situation will settle down around mid-February, according to retail industry analysts. Mask-hoarding has subdued, and production volume is also expected to get back to normal once factories restart production after the Lunar New Year holidays.

MB filters can be a variable

The plot could take another twist if manufacturers fall short of materials used to produce masks. The main ingredients used for hygienic masks are felt and melt-blown (MB) filters. While the supply of felt can be flexible, MB filters can take a hit since only seven companies in Korea make them. The Health Ministry advises the public to use face masks with filters. Some mask manufacturers, according to industry officials, use MB filters made from China which means the situation can worsen if China decides to cut exports of MB filters to Korea.

This is why it is important for the government to keep the supply of materials in check as well as clamp down on anyone who tries to hoard face masks, say industry experts.

BY CHUN YOUNG-SUN, IM SOUNG-BIN AND KANG JAE-EUN [kang.jaeeun@joongang.co.kr]