The Founder of Dilmah Tea reflects on Dilmah’s journey and the local tea industry
By Naveed Rozais
Dilmah Tea is a household name synonymous with quality and Ceylon tea. While Dilmah Tea was founded in 1988, Dilmah Tea Founder Merrill J. Fernando’s history in the tea business goes back 70 years.
At a very intimate event held at Dilmah t-Lounge at One Galle Face last week, Fernando celebrated 70 years in tea and his 90th birthday with the launch of a signature tea-based premium gelato. Developed in collaboration with artisanal gelato brand Isle of Gelato, the signature tea-based gelato uses Earl Grey tea with swirls of caramel infused with ginger and orange.
Isle of Gelato Co-Founders Suranjan Perera and Shalini Fernando shared that Isle of Gelato was thrilled to have collaborated with Dilmah Tea on this signature gelato as well as for the opportunity to honour Fernando for his service to Sri Lanka and Sri Lanka’s tea industry.
Speaking on working with Isle of Gelato on developing the perfect tea-based ice cream, Dilmah Tea Chief Executive Officer (CEO) Dilhan C. Fernando shared that Earl Grey was chosen to be the base of the gelato in part because it’s one of the most famous teas in the world (only behind English Breakfast), and also because of its intensity and texture, along with its beautiful bergamot aroma and citrus top note that lends itself beautifully to being paired with ice cream.
In honour of Fernando celebrating 70 years in tea, The Sunday Morning Brunch sat down with him for his thoughts on and insight into what has made Dilmah Tea the great institution it is today and how the Sri Lankan tea industry has developed over the course of his illustrious career.
What is one principle that you’ve never compromised in business?
It is crucial in business to operate with a generous heart and to never compromise on quality to make bigger profits. If you do that, the whole concept of your business is destroyed. In the present world of discounts, we’re often forced to do that, but if you join the world of discounts, then you’re not a proper business. You will sell your product now because the quality is good, but if you slowly begin to compromise on quality, customers will understand that you’re no longer selling the same product.
Short-term profit destroys a business. For example, about 12 years ago, when Unilever Ceylon, who owned the Lipton tea brand, started discounting their prices from $ 5 to $ 1.99, they initially got a lot of sales, dropping their prices even further. I said then that this sort of practice will be the end of big multinationals because all big operators and brand names – not just multinationals, but even supermarkets – operate on wanting to eliminate the opposition, and the way they do this is through discounting to get more business and eventually become the sole player in the market.
If they do succeed in this, they will then jack up the prices to more than what they used to be before. But this sort of a situation doesn’t last, and sooner or later, whether a big brand or supermarket, they will come to grief.
I’m sad to say that Unilever announced six weeks ago that they are getting out of the tea business and that their brands are now up for sale. It is my hope and prayer that the new brands that are formed will offer good quality.
Quality is integral, and the only way Dilmah Tea is growing sales is by honouring my original philosophy of bringing integrity, freshness, and quality back to tea, and by supplying 100% pure Ceylon tea which is grown and packaged in Sri Lanka.
Leading back to doing business generously, Dilmah Tea produces the first-ever ethically produced tea which goes far beyond Fair Trade, which, personally, is wholly a marketing gimmick.
Speaking apart from the quality aspect of Dilmah Tea, I have promised to share my earnings with the wider community, and I do so rather generously to date. The business has been remarkably successful and in turn, our contribution to the community, the poor, and the needy was significant.
I incorporated the Merrill J. Fernando (MJF) Charitable Foundation which changes several thousand lives each year. Our workers’ children and our staff in production lines and plantation workers receive various benefits. Their children receive all school textbooks, stationery, clothes, shoes, and other supplies to ensure their education, and the brighter children receive scholarships. Today, there are doctors, lawyers, and other professionals among tea pickers’ children who have benefitted from the MJF Charitable Foundation.
What has made Dilmah Tea the great institution it is today?
We have got our tea and our plantations; my personal belief for many years is Dilmah is not just in the tea trade, but our tea industry. We’re the world’s only vertically integrated tea company, from the ground level, which is our plantations to factories, to the global brand, with all its production and packaging facilities that allow us to take our crop directly to the market. We own Kahawatte Plantations and we co-own Talawakelle Plantations with Hayley’s Group and Elpitiya Plantations with Aitken Spence Group. We also own Forbes and Walker Ltd., a leading broking firm.
Hence, we have significant investment in all three segments of the tea industry – plantations, broking, and exports. Accordingly, we are an important company in the tea industry.
The freshness and quality of Dilmah Tea remains exactly the same as when it was launched 33 years ago. In Australia and New Zealand, Dilmah is synonymous with trust. In New Zeland, Dilmah has won the Reader’s Digest Most Trusted Brand Award for six consecutive years, and this year won the same award in Australia for the first time. This is normally an award that is given to local brands in Australia and New Zealand, but Dilmah’s reputation as a brand has made an impression.
Coincidentally, Dilmah was also named the most respected food and beverage brand in Sri Lanka by LMD Magazine last week, which is remarkable given that we are relatively much smaller than the other entities in that space.
Dilmah Tea is used all over the world and is the finest tea for quality. When auction prices go up, our prices remain the same, even if we make losses. When they occasionally come down, we benefit. Overall, we make a profit, but the reputation of Ceylon tea globally is led by what we do with Dilmah. We spend about Rs. 1.6 billion annually on promoting and advertising the Dimlah brand globally.
As a tea company, we supply our tea lovers, through our distributors, a range of hot tea, iced tea, flavoured tea, liquid tea, tea concentrate, and ready-to-drink tea, and we’re looking at other forms of tea now; importantly, a selection of herbal tea including wellness teas like murunga tea. At Dilmah, our tea innovations are hailed by everyone including our competitors.
In an interview with Richard Ellis of Fortune magazine, Britain’s Tea Council Executive Chairman William Gorman said: “Dilmah is a very interesting company. This is an industry that has been incredibly slow to innovate, and relatively tiny Dilmah has showed it how.”
My youngest son Dilhan is now the CEO of the tea companies and plantations. He is building on the revolution I started 33 years ago. His innovations on tea are truly remarkable and unique. He will take the company to great heights.
Our country and our officials have certainly become an authority responsible for tea and every aspect of it, religiously maintaining the colonial culture of trade. Therefore, the producer does not draw benefit from his crop, and watches foreign traders becoming millionaires and multimillionaires off their sweat and toil in producing the crop.
Our exporters of tea are traders, not marketers; their old philosophy is to sell cheaper than their competitors and harm the quality image of Ceylon tea, which Dilmah alone spends billions each year to retain.
Could you please share some of your personal highs and lows, looking back at your career?
The greatest success I can recall is my trade with Ceylon tea exports to Russia, becoming the exclusive supplier of tea to Russia from 1988 to 2000, which started with the opening of the first Russian Embassy in December 1988. The Embassy invited me to help them set up a tea laboratory at a bungalow in Thurstan Road, and thereafter gave me exclusive supply of bulk tea to Russia.
Supply to Russia was something that was only extended to other brands some years later, following which Dilmah retained 80% of its market share. This was also my unhappiest event; the Mafia that was active in Russia at the time made demands from our distributor and one night, they pulled out all our stocks from our distributor’s warehouse. The distributor owed us substantial funds, and I made the decision to never supply Dilmah Tea to Russia after that. That was my biggest mistake, and within three months, our distributor was up and running and thousands of customers all over CIS (Commonwealth of Independent States) almost begged us for stocks. In the end, we supplied two planeloads of Dilmah Tea to a company which charted the plane for the purpose.
Eventually, we resumed trade. However, by that time, one or two new foreign brands which were brought in by other exporters had acquired some market share.
What are your thoughts on the future of the tea industry?
Apart from the pandemic, our tea industry is in poor shape due to a variety of reasons. The leasing of regional plantation companies to investors with no knowledge or interest of tea has resulted in exploitation of estates. Arrangements made to monitor the progress of plantations and estates were not implemented, and owners had a free hand, among others.
Other issues that plague the tea industry include ageing tea bushes, poor agricultural practices, lack of adequate labour, climate change, and low productivity resulting in high costs of production, making tea a nonviable business.
Traders’ sole objective is profit, and how and where it comes from is not their concern. They have been urging the government to permit the importation of tea for blending and re-export. This would have destroyed our tea industry. I opposed this request in the greater interest of our tea industry. This kind of import should never be allowed because they will destroy the image of Ceylon tea with traders potentially making generous profits while driving our tea industry to despair.
The activities of the tea authorities support these traders because they also know nothing about marketing. Not a cent has been spent on advising and promoting Ceylon tea by the tea authorities in the last several years. Instead, the money accrued for tea promotion has gone to the Treasury. If one were to review the export prices of all exporters, it would reveal a very disturbing picture. Prices are between Rs. 600 and Rs. 2,000 per kg; when I feel confident that with carefully planned support, the average export price will be over Rs. 1,000.
What are you working on at the moment?
At the moment, I am paying a lot of attention to our charitable projects throughout the country. The MJF Charitable Foundation receives 15% of our pre-tax profits from every company in the MJF Group, which is used to enhance the lives of workers, communities, and the needy.
All our family businesses are dedicated to Almighty God. He guides and directs us in every way. Our success is owed to Him.