The Tea & Coffee Trade Journal / March 2009
By Larry Luxner
COLOMBO, Sri Lanka — Cars, trucks and three-wheeled "tuk-tuks" fight for space along traffic-choked Negombo Road, one of Colombo's busiest thoroughfares. But step inside the cool, air-conditioned headquarters of MJF Holdings Ltd. and it's a different world entirely.
Lush tropical plants surround the grand entrance to the building, which offers an exansive view of the Kelani River. In the fourth-floor office of director Malik Fernando, a small color TV is tuned to CNN International, while classical music streams from a Danish-made Bang & Olufsen speaker resting on a mahogany bookcase.
The walls are decorated with a framed self-portrait by Mexican painter Frida Kahlo, and a vintage map entitled "Planting Districts of Ceylon" that dates from 1942. From this office, Fernando runs a privately held, $200 million empire that employs close to 30,000 people throughout Sri Lanka.
"My brother is Dilhan, the director of marketing, and I'm Malik. Hence the name Dilmah," he explains matter-of-factly. "My father registered the brand in 1988 and today we sell in 90 countries around the world. We have never been about volume, and we'll go into the smallest market if there's a niche."
The genesis of the company is 78-year-old Merrill J. Fernando, one of Sri Lanka's most successful and best-known entrepreneurs. During a recent working lunch with his two sons and this correspondent, Dilmah's patriarch explained the story of his success.
"I liked tea because I used to spend part of my school holidays in friends' tea gardens," he told The Tea & Coffee Trade Journal."I began to admire the plantation workers, how hard-working they were. In 1950, after graduation, I joined the tea trade, and part of my training was watching the marketing, blending, packaging and branding.
"Then I realized that while we sell the actual tea, which is a finished product — you only add water — we were getting a pittance. All the profits were going to England and other countries, not to the source."
"I wondered how we accepted this system, because it was not in the interests of the country. It took me time to realize that we were a colony serving our masters," said Fernando. "But I thought how great it would be if I had my own brand of tea — highest-quality, packed at the origin, and thereby retaining all the benefits of value addition."
The determined businessman acknowledged that "there was no hope in hell" of fulfilling his dream, but he never quite gave it up.
"As time went by, it became more and more clear to me that I should be doing this," he said. "All the big multinational brands had built their reputation and image by packing pure Ceylon tea. Thomas Lipton, for example, made Ceylon tea famous. He was committed to quality and integrity, but then he sold the company in 1929 and Lipton became a multinational. The link between Lipton and Ceylon tea disappeared, and that denied consumers the opportunity to buy real Ceylon tea."
As major brands moved away from Ceylon tea to cut costs, multi-origin blending became the buzzword. It reached the point where none of the major brands sold in the United States contained any Ceylon tea.
"I don't know whether or not this is good for coffee, but it's certainly not good for tea," said Malik Fernando. "All these companies are run by accountants, not by tea people. My father saw his business threatened, and consumers gradually being deprived. That's when he realized he had to create his own brand."
In 1988, after 34 years of dreaming, the family launched Dilmah Tea — Sri Lanka's only single-origin tea to date.
"We don't blend, and Ceylon tea is the world's finest and most expensive tea. There is no global brand today of any single-origin tea except Dilmah," he boasted. "I brought the consumer real tea that is authentic, traditional Ceylon tea, and also brought hope to tea farmers in this country — because all the benefits of value-added remain in Sri Lanka, and we share this with our workers and we re-invest our profits in the community."
Unlike mass-marketed teas processed with a new fast-track technique known as CTC (cut, twist and curl), Dilmah insists on a more time-consuming artesanal process which ensures the handpicked tender tea lef provides maximum flavor.
Instead of spending months in transit and storage while waiting to be blended and packaged overseas, Dilmah is packaged at source within days of leaving the field, sealing in freshness and keeping healthful antioxidants intact.
Malik, 42, and Dilhan, 40, oversee the company's day-to-day operations from their sprawling headquarters in Colombo, where 1,000 workers are employed in the processing plant. The company calls itself "the world's only truly vertically integrated tea producer."
Its teas include Lover's Leap Estate, Somerset Estate, Dombagastalawa Estate and Nilagama Estate. Among traditional varieties in the Dilmah Gourmet Series are Earl Grey, English Breakfast, English Afternoon, Irish Breakfast and Ceylon Supreme.
The Dilmah Green Tea offerings include renowned Ceylon Green Tea with Real Cinnamon, Real Ginger, National Lemongrass, Moroccan Mint and Natural Green Tea.
"The average, older tea drinker who drank Ceylon tea in the '70s and '80s thinks he's still drinking Ceylon tea when he's not," said Fernando. "One reason why coffee has taken share away from tea is that the quality of tea has gradually declined. Typically, coffee was an out-of-home beverage, while tea was an at-home drink. "
In an attempt to reverse that trend, Dilmah and Florida-based Unity Brands Group signed an agreement in September 2008 to make Dilmah's single-origin teas available at major U.S. grocery chains.
"People everywhere are re-discovering the rich and satisfying flavor of fresh-packed, 100% Ceylon tea," said Unity's founder, Praful Mehta. "Dilmah has become a phenomenon around the world because it has brought back the tradition of hand-picked, single-origin tea, something you won't find in mass-produced teas that are typically blends from several different countries. Dilmah is revolutionizing tea in the same way gourmet coffee changed the expectations of consumers with regard to taste, freshness and authenticity."
Fernando said that so far, Dilmah Tea has been "fairly well-received" in the United States, where its teas are now sold in about 1,000 stores along the East Coast. Internationally, some 30% of Dilmah's sales come from restaurants, airlines and hotels which, according to Mehta, "provide excellent exposure to consumers and has been shown to drive retail demand in a very direct way." Even though Dilmah is still relatively new to the U.S. market, he said, "many of the grocery chains and specialty stores have been pleasantly surprised by the degree of brand awareness that already exists here."
In the meantime, the company patriarch spends much of his time on the MJF Charitable Foundation, which he established in 2001. At present, the foundation operates more than 100 educational, medical and sanitation projects throughout Sri Lanka, and is funded by the revenues of Dilmah and its related company.
"When I look back on my success, I have no explanation of how I did it — except to attribute it to divine guidance," Fernando told Tea & Coffee."So my earnings justifiably go to the poor, and my foundation does a tremendous amount of work toward helping the underprivileged. I feel that corporate social responsibility is not an option but an obligation."
Fernando said he has just allocated $12 million to acquire 10 acres of land in order to build a hospital for disabled children. Among other things, the MJF Charitable Foundation has already completed development or construction of 71 child centers, which care for a total of 3,500 children. Other efforts range from eye-surgery clinics to homes for the elderly.
In partnership with the Sri Lankan government and the United Nations, Fernando's foundation helped fund construction of a road network on the east coast which provides access to land allocated for post-tsunami relocation. The foundation also built houses for 200 families and provides assistance to 65 small entrepreneurs in the area, which has been ravaged by Sri Lanka's conflict between government forces and Tamil Tiger rebels.
"We spend about $3.5 million a year. When I'm through putting up additional buildings, it'll be an additional $8-10 million," said the elder Fernando.
"Eventually, the foundation will get all my personal wealth when I die. I have built up a very substantial business. The MJF Group owns every segment of the tea industry," he told us with obvious pride. "But that is not the satisfaction I get in my life. The greatest satisfaction is what I do with the foundation — because it's the obligation of every business, big and small, to help alleviate poverty in some way." - END -