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Tea for more than two

Nov 22, 2012

In the past two decades Dilmah Tea has become one of the world's largest independent tea companies and one of the best-known Sri Lankan brands.

Dilmaha's story of how it became a global success as a vertically integrated operation struck a chord with food industry experts who lunched with company founder Merrill J Fernando and his son Dilhan at Cranleigh's offices.

The story symbolises the path other Sri Lankan businesses and industries have had to follow to compete with the likes of China and India, which have lower costs of production and the advantage of size. To attract business, Sri Lankan companies have become specialists and producers of affordable yet exclusive products.

The Dilmah Group has positioned itself like fine wine. Its elegant packaging is heavy with wine iconography: descriptive labels equating a robust black tea to a shiraz, or a fine white leaf to champagne. The aim is to present the tea as the purest in the world while also playing to consumers' health concerns and rising enviro-consciousness.

The tea industry that has been incredibly slow to innovate, and relatively small Dilmah has showed it how. The company has doubled in size since 2000, averaging 15% annual growth in revenue and profit, according to Dilhan, who adds that an edge in quality allows margins up to 40% higher than those of its competitors.

The success of Dilmaha's brand has led to Merrill spurning many offers to buy him out over the years. "I've stayed true to the leaf because I believe in its quality, and not in its mass-market commoditisation."

Merrill spent much of his early career selling tea to big companies like Lipton and Tetley. But in the 1970s, he noticed buyers in the United States, Europe and Australia had started to buy less Sri Lankan tea, blending it with cheaper teas from other countries. Those companies profits jumped, but growers, producers and traders in Sri Lanka were devastated.

Unless I got into branding and marketing, he says, would have been out of the business in two or three years.

Merrill's break came in the mid-1980s when Australian supermarket chain, Coles, gave him an order for tea that carried the store's brand. Dilmah has since expanded across much of the globe. The research firm Datamonitor estimates it is the sixth-largest tea brand in the world.

Dilmah, named after his sons Dilhan and Malik, who now help run the company, positioned itself as a seller of pure Sri Lankan, or Ceylon, tea that was not blended with other teas.

The company's vertically integrated operation - producer, packager and marketer of its own teas - is unusual in the tea industry, but a lesson in how to set up a successful global brand.

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