Taking on the World with a Cup of Tea

Name:Dilmah Tea
Country / Territory:Sri Lanka
IP right(s):Trademarks
Date of publication:July 15, 2011
Last update:March 6, 2015

Dlimah Tea, Sri Lanka

The traditional Dilmah logo (EU CTM Number E4314167)

Growing up in the village of Pallansena in the southwestern region of the Democratic Socialist Republic of Sri Lanka (Sri Lanka) in the 1940s, Merrill J. Fernando would spend part of his school holidays each year on tea estates that were owned by the families of a few of his close friends. The hard work and commitment of the tea growers around him left a particularly strong impression on the young boy. Despite the busy and back breaking nature and long hours of their work, Mr. Fernando was always impressed with the good nature and positive attitudes of the farmers, who always had smiles on their faces. The more he visited the tea estates, the more he grew to like them, and he soon fell in love with tea and the tea industry.

Research and development

In the 1950’s, after finishing his tertiary education, Mr. Fernando moved to the capital of Colombo seeking to become a tea taster The tea industry had recently been nationalized following Sri Lankan independence in 1948, and management of Sri Lankan tea estates fell under the government’s control. During this period of transition, the tea industry suffered negative consequences due to the new managers’ unfamiliarity with many important aspects of tea farming and production. In order to develop and market tea for the domestic population, a group of British companies chose six individuals to train. The young Mr. Fernando was one of these individuals, and his love for tea and time spent on the estates of his friends as a child proved to be invaluable. “…I had spent time on the plantations watching how the tea was grown and manufactured and now I had the opportunity to get into the tea trade,” he said. From tasting to blending and everything in between, Mr. Fernando became quickly connected to everything in the Sri Lankan tea industry.

At age 24, Mr. Fernando’s went on to Mincing Lane in London, which was then the center of the tea world where many predominant international tea companies were headquartered. He spent two years there learning everything about tea production and how Sri Lankan tea was used. He soon found that it was usually mixed and blended with other, non-Sri Lankan teas, but was typically marketed in Europe as pure Sri Lankan tea. To his dismay, he also discovered that tea from his country was generally treated as a raw material and exported for extremely low cost. This meant that the producers of Sri Lankan tea only received a small fraction of the profits the large tea companies and other middlemen were enjoying. Seeing this inequality, Mr. Fernando felt that he needed to do something to bring more of the profits from Sri Lankan tea to the local producers.

By the end of the first year of his training, Mr. Fernando grew worried about profits being siphoned away from producers and also about the low quality that results from excessive blending. The more Sri Lankan tea was blended with other teas, he feared, the less desirable it would become. He decided that if he did not do something, the reputation and popularity of Sri Lankan tea would wane and would be at risk of disappearing altogether. This would bring an even greater financial loss to the producers back in Sri Lanka, whose livelihoods depended on their tea. It was at the start of his second year of training that Mr. Fernando began planning ways to develop and market his own, pure Sri Lankan tea that is grown, processed, and packaged locally.

Commercialization

The nationalization of the Sri Lankan tea industry was followed by twenty years of stagnation as tea crops died and prices plunged. “We went through a terrible period,” explained Mr. Fernando, but after private sector management with intimate knowledge of the tea industry and traditional production methods returned, the plantations quickly became viable again. Seeing the effectiveness of the new management, the Sri Lankan government privatized the tea industry and sold the estates to private individuals and companies. In 1974, Mr. Fernando bought his first few estates to try his hand at producing pure Sri Lankan tea, and founded Ceylon Tea Services Limited (CTS) in 1981. As the company grew and more subsidiaries were launched in various countries, CTS – and all other companies Mr. Fernando owned – would later become wholly owned subsidiaries of MJF Holdings, Limited (MJF Holdings).

Sri Lankan tea has a reputation among the world's best
(Photo: Flickr/Ranil Amarasuriya)

In the early years, the young entrepreneur found it difficult to compete with the more established multinational tea corporations and make his dream a reality. It was difficult for him to find buyers for his tea and he struggled to keep his fledgling estates afloat. For much of the early part of his career, Mr. Fernando sold his tea to multinational tea companies like Lipton and Tetley which they marketed under their own brand names. In the 1970s, these and other major international tea companies started purchasing less Sri Lankan tea, as they were blending it with cheaper teas from other countries such as India and China. Because these blended teas were marketed as Sri Lankan teas – which traditionally commanded a premium over Indian or Chinese teas – profits for these companies jumped. Unfortunately, this meant that Sri Lankan growers, producers, and traders were devastated as they saw their livelihoods vanish. Disturbed by these events, Mr. Fernando decided to bring prosperity back to the tea industry in his homeland by creating, producing, selling and promoting a new pure Sri Lankan tea brand called Dilmah (an amalgam of the names of his two sons Dilhan and Malik). Mr. Fernando positioned his new company as a seller of pure Sri Lankan tea and remained steadfast in his commitment not to mix it with other teas. The new family run company first tried to sell Dilmah tea directly to major international companies and foreign supermarkets, but most had never heard of the new brand and it was hard to persuade them to take a chance on the new company. “It was very difficult to even get an appointment with the big chains,” explained Jaliya Wickramasuriya, a former Dilmah executive.

Things changed dramatically in the mid 1980s when Mr. Fernando finally entered the Australian market through a partnership with Coles, one of the largest retailers in Australia. Coles had been initially skeptical that Mr. Fernando’s new, unknown brand could be successful, as the major international tea companies already had a strong foothold in the country. It took Mr. Fernando two years to convince Coles that consumers would come back to pure Sri Lankan tea if it was on the store shelves. “Believe me,” he said, when in discussions with Coles, “take two of my products on your shelf and I’m sure that consumers will like the tea.” Impressed by his drive and confidence, Coles placed an order for Mr. Fernando’s tea that would be sold under the store’s brand name.  Coles decided to initially test the new tea at a single retail outlet, and its popularity proved to be so high that within six months the retailer increased this to five locations. Within two years Mr. Fernando’s tea could be found on the shelves of Coles stores throughout Australia. This success gave his tea respect among consumers and gave him the ability to launch his tea under his own brand name.

The strong consumer reaction to the resurgence of pure Sri Lankan tea and positive early sales gave Mr. Fernando some leverage with Coles and other tea buyers, and in 1988 he officially launched Dilmah as an independent brand. Mr. Fernando had confidence that the quality of Dilmah tea, which goes from the tea estates to the store shelves in a matter of weeks, thus retaining its freshness, was far beyond anything the major multinational tea companies were selling. Entering the Australian market significantly increased brand awareness and allowed him to enter the international market on a larger scale. With sales booming in Australia, Dilmah was soon on sale in nearby New Zealand and other countries in Oceania and Asia. Sale of Dilmah tea spread quickly, and throughout the 1990s it became one of the most popular teas in Europe and North America.

A unique commercialization effort that was launched in the early 2000s was the development of the Dilmah t-Bar, which provides consumers with an unprecedented variety of tea to enjoy in a modern, relaxing environment. "The Dilmah t-Bar is the first genuinely ground-breaking concept in on-premise, tea service,” explained Mr. Fernando. “Unlike its competitors, Dilmah avoided the temptation to mimic café style concepts, and invested over two years in researching and developing an innovative and revolutionary tea service. The result is the world's most esoteric and eclectic collection of boutique teas featuring 39 different teas from selected estates, and over 100 different recipes, all based firmly on tea" said Mr. Fernando. Visitors to the t-Bars can taste all of these different varieties, and also learn how to make, drink, and appreciate tea, which is similar to what one can experience at a winery. These efforts are aimed at showing consumers that the high quality of Dilmah tea is worth the higher price.

By 2011, these strategies have made Dilmah the only international Sri Lankan tea company and one of the few vertically integrated tea companies in the world, growing tea on its own estates (some of Sri Lanka’s best) and using state of the art facilities to print, package, ship, and market the tea. This kind of “vertical commercialization” is the manifestation of Mr. Fernando’s vision for Dilmah tea, and as he often says, “My family cares for your tea, from the tea nursery right to your teacup.”

Branding

Early on, Mr. Fernando realized that if he were to compete with the large multinational companies, he would have to successfully market his own brand. “Unless I got into branding and marketing,” he said, “I would have been out of the business in two or three years.” Creating a brand name and image was important, but Mr. Fernando also knew that he had to link it to a unique product that was of the highest quality. “I realized that I would not have any hope of success,” he explained, “unless I had a unique product; unique in every aspect.” This unique product had to be backed by a powerful brand. “I want to market the finest tea on earth and ethically produce [it] and above all,” he said, “share my earnings with the poor and the community.”

Mr. Fernando’s Dilmah brand was centered on a simple philosophy: ethical production. Dilmah tea is grown, harvested, processed, packaged, and marketed by local tea farmers and workers in Sri Lanka. Doing so ensures that the profits stay with the people who put their hard work into it, and also bring in much needed stimuli for local economies. As Mr. Fernando described it, “…it’s not just fair trade, it’s the fairest trade.” When consumers see the Dilmah brand, they know that not only is it of the highest quality, but it is also ethically grown, processed, and marketed within Sri Lanka, ensuring that profits from Dilmah tea are reaching the right people.

This concept of high quality, ethical production continues to be essential to the success of Dilmah tea, and this can be seen on each package of tea, which is inscribed with the swords “Single Origin 100% Pure Ceylon Tea.” This simple slogan gets across to the consumer two very important concepts that are vital to the Dilmah brand. First, that the integrity of the tea is preserved as it is ethically produced; and second, that the tea is pure Sri Lankan tea and is among the finest teas in the world. Guaranteeing the pureness of the tea has become a hallmark of Dilmah’s marketing and brand strategy. When a consumer purchases Dilmah tea, they know that they are purchasing pure Sri Lankan tea, and not something that has been mixed or diluted. This is an extremely important aspect of Dilmah as it gives the tea a strong competitive edge.

Most of the major tea manufacturers and leading brands mix their teas with up to 35 different kinds from various locations all around the world. However, there is only one kind of tea from one region in Sri Lanka inside each Dilmah package, making it stand out from the crowd and ensuring consumers of its quality. Consumers have embraced Dilmah tea, and according to data obtained by Euromonitor  in 2009, it is among the top eight tea brands and the third largest standalone tea brand in the world. This is a result of Mr. Fernando’s efforts to keep the tea and the conditions in which it is made fair, and the Dilmah brand has therefore become synonymous with integrity and quality among consumers.

Another important part of the branding strategy of Dilmah is to communicate to the consumer the company’s philosophy, including its family run nature, which resonates with many small business owners and entrepreneurs. Rather than publicizing this in advertisements, the company has included a small message from Mr. Fernando in each package of Dilmah tea explaining the company’s history, belief in family, and commitment to helping the poor and local communities. Each package also includes the line “One CEO who makes his own tea,” which accompanies a small paragraph espousing the unique qualities of Dilmah tea, Mr. Fernando’s personal guarantee reflecting his sincere commitment to his tea, and the social responsibility that the company strives to maintain. “If I did not attach those good components into the brand I would not have survived the onslaught of the big companies,” Mr. Fernando explained when discussing the importance of the value added to the Dilmah brand.

While Dilmah’s competitors tend to focus on low prices, MJF Holdings focuses on making the highest quality tea and links that to its brand name. Dilmah tea is therefore priced higher than its competitors in most countries, and this has earned it a positive reputation as consumers have associated its higher price with higher quality. Through market research and consumer feedback, MJF Holdings has learned that consumers tend to purchase Dilmah because they are unsatisfied with the cheaper, lower quality teas and are looking for something better, even though it commands a small price premium. As Mr. Fernando said, “If the quality is good they are with you.”

Consumers are attracted to this personal branding approach, as it can be easier to relate to than other approaches taken by many of MRF Group’s competitors. The company’s approach is to have Mr. Fernando explain to the consumer is long history with growing tea, and that essentially “I grew this in my garden and I am bringing it to you,” as Mr. Fernando said passionately. The use of the founder’s personality, words, and beliefs brings across a sense of trust and integrity, which is something lacking in many of Dilmah’s competitors, which simply rely on celebrities to try and sell their tea. “If you tell celebrities to say I grow this and so and so, soon it will wear out because she or he will be selling something else [the] next time,” the founder explained. “If you’re bold enough to put yourself and your face in front of your product, that’s confidence and integrity.” MJF Holdings’s entire marketing strategy for Dilmah tea is based around this philosophy, and it has proven to be a way in which consumers can identify with the brand.

Trademarks

The stylized "Dilmah t" logo
(New Zealand IP Office
Trademark Number 167904)

Because the qualities of Dilmah tea and the ethical nature of its production are espoused through its brand name, utilizing the intellectual property (IP) system to protect it has always been a vital part of the success story of Dilmah tea. As Mr. Fernando explained, “…we strongly feel that the brand name should be protected and it must represent integrity of quality.” The entrepreneur first registered a trademark for Dilmah with the National Intellectual Property Office of Sri Lanka in 1974, but did not actively use it until he actually launched the Dilmah brand independently in 1988. The importance of protecting his brand name through a trademark registration was made clear to him in his early days of tea production in the 1970s. During this time, Mr. Fernando was packaging his Sri Lankan tea for sale under different brands at major retailers such as Coles in Australia. With his access to foreign retailers, which was difficult or nearly impossible for many Sri Lankan tea producers at the time, many unscrupulous people approached him and offered him more money if he copied the tea and trademarks of famous multinational tea companies such as Lipton.

Desiring to take no part in such unethical activities, Mr. Fernando always gave them the most sensible answer: “The best place to buy Lipton tea,” he said, “is from Lipton.” Mr. Fernando lost a lot of potential money by refusing to infringe on his competitor’s trademarks and brands, but he had no interest in such dubious activities and also had no interest in having his tea branded as his competitor’s tea; tea which he felt was generally of lesser quality. Despite his efforts to curb such IP infringement, many of his peers were undertaking rampant copying and trademark infringement, packaging their own teas and branding them as tea from famous international tea companies. When he saw this infringement all around him, he knew that if his Dilmah brand were to be successful, he had to protect it with a trademark registration.

Although Dilmah tea experienced infringement of its brand and trademark by the same people that copied the brands of his competitors, Mr. Fernando’s timely trademark registrations ensured that the damage would be contained and minimal. A 1986 registration with the Intellectual Property Office of New Zealand and a subsequent 1992 trademark registration with IP Australia allowed Dilmah to maintain an edge on its larger competitors and firmly build its brand name, image, and connection with consumers in Oceania, which was the largest market for Dilmah tea early in its history. The MJF Holdings has made further prodigious use of the IP system in these countries and continues to register trademarks for its main products and brands, including the Dilmah name with a stylized t that is used in the name for Dilmah’s t-Bar locations in Australia, New Zealand, the United States of America (USA) with the United States Patent and Trademark Office (USPTO) and as a Community Trademark (CTM) through the Office of the Harmonization of the Internal Market (OHIM) of the European Union (EU).

As Dilmah expanded to other regions, Mr. Fernando ensured to make further trademark registrations. In 1986, his company made a registration for the Dilmah name with the Institut National de la Propriété Industrielle of France, and in 1996 registered the same trademark in the USA with the USPTO. Mr. Fernando also has protected his company’s philosophy – Single Origin Ceylon Tea – through trademark registrations in a number of countries, including Australia, New Zealand, and as a CTM in the EU. These are but a few of the many trademark applications that MJF Holdings has made throughout the world to protect the Dilmah brand. The company’s strategic registrations have allowed it to withstand copiers and the founder views trademark protection to be one of the most important aspects of developing a successful brand. “The first step I would recommend [to] anyone who wants to start a brand is to [first] get it registered,” he explained. Aware that copiers can come from anywhere, Mr. Fernando has been vigilant in his research and MJF Holdings has always registered a trademark for the brand name in each country in which Dilmah tea will be sold before it actually goes on sale in that particular country. “You don’t know where they will print and copy your brand,” he said, when discussing the importance of registering a trademark.

The foresight that Mr. Fernando had to register the Dilmah trademark has been instrumental in the success of the tea and MJF Holdings in many ways. The most important is the fact that the Dilmah trademark is a representation of not only the physical product – the tea – but also of the ethics and business practices of Dilmah as a company. In Mr. Fernando’s experience, he has found that tea that is of high quality and retains it consistently has the best chances of successes when competing with a sea of cheap, low quality teas. Describing the reasoning behind the importance of the connection of trademark registrations with the Dilmah brand, Mr. Fernando stressed that “…our strategy is build around the brand…it is [the] most important thing,” and that without a trademark protecting the brand, his company would not have been able to build and maintain a loyal customer base.

Traditional knowledge

All of Dilmah's tea is still produced the traditional way
(Photo: Flickr/Nick Leonard)

A vital aspect and ingredient to the success of Dilmah tea has been the preservation of the traditional knowledge surrounding its production. Through his summer experiences on tea estates as a boy, Mr. Fernando learned at a young age the importance of preserving the traditional ways, and that by doing so a higher quality of tea can be produced. Dilmah still follows the same production process that Mr. Fernando saw at his friend’s tea estates in the 1950s. Perfected over centuries by Sri Lankan growers, the tea leaves are handpicked and then undergo withering (evaporating moisture), rolling, oxidization (fermentation) and firing (heating with a natural fire) in the same traditional ways. The resulting teas are sophisticated but accessible to anyone, and retain a higher quality than newer tea production methods such as the Crush, Tear, and Curl (CTC) method. While the CTC method can produce tea quickly, it sacrifices quality and many of the natural aspects that make the tea special. As Mr. Fernando describes, CTC creates “tea without a soul” and goes against the grain of his company’s philosophy Determined to remain true to Sri Lanka’s tea growing roots, MJF Holdings ensures that all of its Dilmah tea is produced using the traditional method, regardless if it takes a little more time..

In addition to a reduction in quality, the wide use of CTC among major multinational tea companies has led to a sharp decrease in the number of tea grades available. Producing tea with the CTC method typically reduces the total number of grades to three. This allows large companies to meet massive consumer demand without putting much time and effort into tea production, which translates into inconsistent quality and few choices for consumers. Using the aforementioned traditional method of tea production in Sri Lanka, however, can yield up to forty different tea grades, each with a different character, taste, and appearance. This variety of grades gives consumers an equally large variety of Sri Lankan teas to choose from, and a consumer can be sure to find a grade that fits their individual taste.

Social issues

Ethically producing tea is not simply a slogan, but something that MJF Holdings as a company lives by. This is evident in the formation of the Merrill J. Fernando Charitable Foundation (MJF Foundation) in 1999, to which all companies in MJF Holdings donate ten percent of their revenue to contribute to social projects to improve the health, education and quality of life of people throughout Sri Lanka. In addition, Mr. Fernando himself donates up to a third of his personal annual income to the Foundation. The MJF Foundation was the successful culmination of Mr. Fernando’s vision to reward the workers and communities that helped him transform Dilmah from a little known local brand to one of the most popular tea brands in the world. The MJF Holdings maintains a clear understanding that it was the combined roles of the community, environment, workers, and staff that made the success of Dilmah possible. “The wealth that we acquire is with the cooperation and commitment of many others,” explained Mr. Fernando. “I decided that while I am still around I would like to share that wealth with those who helped me get it, and that was why I created the MJF Foundation.”

Business results

The strategy of providing fresh, ethically produced, high quality tea has made Dilmah one of the most popular tea brands in the world. As of 2011 the brand is sold in over 100 countries, is the second most popular tea brand in Australia, and is one of the most recognized international tea brands. Dilmah is Sri Lanka’s most recognized international brand and is also the country’s predominant tea exporter. On one of its largest estates, the company enjoys a production of approximately 10,000 kilograms per hectare. In 2009, Datamonitor estimated that Dilmah was the sixth largest tea brand in the world. The company has also expanded into tourism by turning four tea estate bungalows dating from the late 1800s in central Sri Lanka into luxury guest houses known as Ceylon Tea Trails. This innovative concept absorbs the traveler into life on a working tea estate and teaches them everything they need to know about making the perfect brew. In 2011, Ceylon Tea Trails won the Traveler’s Choice award from Trip Advisor, the world’s largest travel website.

Although the global tea industry suffered from a weakened international economy and adverse weather during 2008 – 2010, Dilmah has been able to leverage itself with its strong brand name and remain profitable. In 2010, the company reported a post tax profit of 537 million Sri Lankan Rupees (Rs, approximately US$ 4.9 million), up from Rs 487 million (approximately US$ 4.5 million) in the previous year. Sales have also remained healthy, as turnover improved in 2010 by an increase of 11.6% over the previous year. Dilmah’s strong brand name and innovative and successful promotion efforts have developed it into one of the world’s most popular tea brands and ensured its continued success.

A brand that revived an industry

The path that Mr. Fernando took to turning his dream into reality was long and filled with many obstacles, but he succeeded in creating a prosperous company and arguably Sri Lanka’s most popular brand. Protected with trademark registrations, the entrepreneur has been able to use his brand to grow his company, give back to the community and environment, and make a positive impact on the lives of over a million people involved in the tea industry in Sri Lanka. Moreover, Dilmah has brought Sri Lankan tea back to the forefront of the industry. Through creating a strong brand back by integrity and consumer confidence, Dilmah has exceeded even the founder’s expectations. “As a family company, we have come to a level which I never even dreamt about,” said Mr. Fernando. “We don’t want to be the biggest brand,” he went on to say, “…but we are the best brand; that’s where we want to remain.”