Sipping success: Nobel Peace Prize honouree Merrill Fernando

Nobel Peace Prize honouree Merrill Fernando, 86, has fought colonialists, retailers and even consumers to bring Dilmah tea to the world. While he remains frustrated with multinationals 'destroying' quality and integrity in FMCG, he says a shift in the industry is brewing
Sipping success: Nobel Peace Prize honouree Merrill Fernando
By Courtney Trenwith
Fri 23 Sep 2016 12:29 AM

If Merrill Fernando were to be described as a cup of tea it would be the original, straight black. No diluting, no sweetening and certainly no messing around with labels and fancy packaging.

Just purity.

You see, for three decades the Sri Lankan has passionately served the world what he unabashedly claims is the only quality, integrity-filled, free trade tea. But doing so has not been easy, battling retailers and consumers demanding he lower the quality and, thus, the price.

He has been forced to compete with the convenience but unnatural nature of teabags, the allure of flavoured tea, and fancy packaging, when all he wanted to do was bring home-grown, home-produced, home-marketed tea to the world and return the profits to the farmers.

It is perhaps this ongoing friction that has caused the otherwise demure octogenarian to speak forthrightly.

“The lesson Dilmah taught the world’s producers of raw material is a very simple one — that you can do with real integrity what others do through exploitation of their labour,” the founder of Dilmah tells Arabian Business during an interview in Dubai.

Dilmah tea has been in the UAE for 10 years but Fernando admits it has tasted only small success, faced with the cheaper, mass-produced products of huge multinational FMCG conglomerates such as Lipton (owned by Unilever) and Dubai-based Alokozay.

“This is a market where big traders, like multinational brands don’t sell quality tea, they sell a pitcher of tea to meet price points. They give hundreds of bags of tea with a gift attached to it more expensive than the tea, so the quality of tea pays for that,” Fernando says.

“Consumers have gotten used to that and they buy cheap, cheap tea and poorer, poorer quality of tea.

“Dilmah brought integrity back to tea, quality back to tea, freshness back to tea, and a new philosophy of caring for customers and sharing with the poor. I brought this concept to Dubai some years ago but people are very loyal to old, big multinational brands and they believe they’re the best quality.”

Dilmah has had a difficult start in the region for a number of reasons, including that the GCC has a long history of drinking coffee, rather than tea. Convincing consumers to drink tea, let alone to value quality, was difficult.

Fernando is upfront about his frustration. “Every time I go to the retailer and say we have the best tea in the world, [they say] ‘I know how good the tea is but my customers don’t want that’. I say, ‘why don’t you try it’. They give the customers cheap, cheap tea… it is a grave, gave injustice to producers and to the customers,” he says.

“There are maybe 25-30 percent of your customers who look for good food and drink [he tells retailers]. These customers pay $2,000-3,000 for a dress; if they are trained to eat and drink good food, they will, but you don’t give them an opportunity.

“When you go to the supermarket, you get buy-one-get-one-free [packets of tea], who pays for that? You [the consumer] pay for that because you’re getting poorer and poorer quality. But I’m a lonely voice.

“I can’t tell you how many retailers have told me, 'Dilmah is really established, customers love it, now is the time to go for volume; reduce your quality, reduce your price'. I said, I’m not going to sell my soul. I am a family man. I’m a good Christian and I want to make sure that integrity of my brand remains intact.”

But the brand has been brewing a little better in the past two years, securing exclusive supply deals with many of the region’s most luxurious hotels, full-service airlines including Emirates, and entering Carrefour supermarkets.

“Carrefour welcomed us and are treating Dilmah tea as it should be, as a premium quality tea at a premium price,” Fernando says. “With the proper marketing concept behind a quality product like that, Dilmah is now going into most affluent homes.”

But it is not only about supplying quality tea that differentiates Dilmah. The business is founded on the principle of supporting the entire surrounding community in Sri Lanka. Since its inception, Fernando has provided employees’ children with school books and scholarships, while now his MJF Charitable Foundation supports a myriad of programmes spanning an orphanage, conservation, women’s empowerment, entrepreneurship, reform of prisoners and aiding the disabled.

 

Last year, Fernando was selected as an Oslo Business for Peace Honouree by the Award Committee of Nobel Laureates in Peace and Economics.

“I came from a humble beginning. My mother taught me if you have a little extra food, or chocolate or sweets, share that with the neighbours’ children,” Fernando says, explaining his philanthropy philosophy.

“I used to argue when I was a little chap — 'mother why don’t you keep it for me to eat?' 'No, no, you have to give it’ [she would reply]. So that thought stayed embedded in my mind until I started my own business and started making profits.”

The making of Dilmah tea dates back to when, as a 20-year-old, Fernando was selected among the first Ceylonese tea tasters to be trained in what was then the world centre of tea, Mincing Lane, London. But while he was fortunate to have penetrated an industry almost exclusively reserved for the British colonialists, his experience horrified him.

While in London he learned the unfair nature of global trade, witnessing what he interpreted as exploitation of his fellow countrymen who toiled the tea plantations to be paid barely a percentage of the end value.

Tea, he could see, was a finished product yet was being treated as a raw material, shipped abroad and re-packaged to the benefit of wealthy Europeans.

He vowed then to set the industry straight but it would be another 38 years before Dilmah — a name combining those of his sons, Dilhan and Malik — was launched. Now the brand has 1,400 employees who do everything from farming through to marketing, ensuring that all value-add remains in Sri Lanka.

“Dilmah is the only company in the world which is vertically integrated with the tea industry; we own our own tea plantations, we own all the packing, printing, blending and all the facilities required to take the finished product to the market,” Fernando says. “We make Dilmah fully value-added in Sri Lanka and provide huge employment opportunities.

“It was the world’s only ethically-produced tea when it was launched 30 years ago; I am sad to say it is still the only ethically produced tea in the world.”

Fernando also has ventured into hospitality, with Dilmah afternoon tea a highlight at each property.

Some may beg to differ but Fernando claims even the Fair Trade label — applied to products that are sold without the ‘middle men’, that is, they are supplied directly from the producer to the consumer, to ensure the producer receives as much of the benefit as possible — is a marketing gimmick that costs consumers.

“You know how many [consumers] have told me ‘please get the Fair Trade label and increase your price’. I said, I will not do that, the Fair Trade label is a marketing gimmick; you’ve got to pay extra money for that and the farmer doesn’t see any sight of it because the retailer gets a cut, importer gets his cut … they’re not going to cut to the farmer,” Fernando says.

“There is nothing fair about trade. Trade is: you grow, I buy, make money; that’s trade. If you market your own crop; that is the fairest form of trade.

“Every other brand of tea — big or small — belongs to a trading company. The trader sits in big cities, buys the cheapest tea from anywhere, gets a contract to pack it, puts his brand name and he’s rich. He has no loyalty, allegiance or love for the industry or the poor workers — nothing.

“Dilmah is a farmer’s tea; we grow our own teas [and] farmers are bringing their own crop to the market and making the additional earnings that foreign traders make. As a farming family we share it with other farmers. That should be the [method of] trade.”

Farmers in other parts of the world, particularly in Africa, have caught onto the direct-sell style of trade. There are multiple examples of farmers banding together to form a local co-op and create their own brand.

“Consumers get a top class product, cheaper and genuine,” Fernando says of the free trade model. “But the retailers will not like that and the big giant multinationals will destroy a concept like that.

“That’s why at the very beginning [of Dilmah] they said ‘you are attacking the very core of the colonial trade culture’. That is, [you, the farmer] produce the raw material, we market it; now you’re trying to do what we do. [But] who gives you the tea? We do. Terrible argument.

“They realised if every country producing tea marketed their own crop, the consumer would get fresh tea all the time.”

Fernando insists he will not be pushed into lowering his standards.

But simply convincing retailers to stock Dilmah tea on their shelves — Australia’s Coles was the first in 1988, and the country remains the brand’s largest market — was only the beginning. Fernando has since had to respond to convenience- and marketing-led tea products that have been launched by the multinationals, such as Fernando’s pet hate, teabags.

“We started with regular black tea, packeted loose leaf. Then the bag came, so we followed suit. I remember it was mainly a heat-sealed bag, no tag, nothing, just a heat-sealed bag, which is a proper teabag. Then one trader came out with a string attached to the bag — it is the same tea costing more with a string attached,” Fernando recalls.

“Then they gave it a [paper] envelope, then they gave it a foil envelope. All the time this is all additions; the poor humble tea remains the same. The packaging changes, prices go up, who makes the money? Consumer pays more and more money for the same cup of tea.

“Then they came out with the flavours. Now herbs.

“Big multinationals destroyed the black tea category by making it cheaper and cheaper, then they started [destroying] green tea. I launched the first green tea in Brisbane, Queensland. At a press interview at the launch I said I hope the big traders will not destroy the green tea category the way they destroyed black tea. I hope they will treat green tea with respect and not add flavours and other additives and chemicals. Within five years they started green tea with this, green tea with that.

“We also supply green tea with certain additions but natural, absolutely natural, because we have to follow the consumers, follow what the big players do, they lead them [the consumers]… otherwise we can’t survive.”

Fernando has long had a fighting spirit. He was expelled from two schools for arguing with his teachers and he has attracted the wrath of the Sri Lankan government, which did not believe a home-grown company was capable of marketing the famous Ceylon tea, he says.

But, thankfully for Fernando, he never put away his tea cups — and now the hot beverage industry is reaching a tipping point, including in the UAE. Specialist coffee and tea outlets are becoming increasingly popular in the Gulf, as consumers become more knowledgeable about sourcing, flavour and blend.

In a report released in April, Euromonitor International said the health and wellness trend and the desire for single source were driven by “young affluent consumers developing an increasingly eclectic taste”. Consumers are not only drinking more tea, they are more aware of where it has come from and what it consists of.

Fernando is prepared to compete against big multinationals who serve the GCC cheaper tea.

UAE consumers are expected to drink nearly 46,000 tonnes of tea by 2020, compared to 35,300 tonnes in 2015, according to Euromonitor International. That is 68 percent more than coffee.

The increasing discernment of tea drinkers is bound to support Dilmah.

“People are turning to loose leaf tea,” Fernando says.

“We are trying to bring tea up to where it was. And we are succeeding, and creating an image where tea is a noble drink. Now it is coming. Top-end people are talking about loose leaf tea, the five-star hotels are talking about loose leaf tea.

“I am personally going to promote loose leaf tea — retailers and people are coming down on my head. I said I will bring it straight to the consumer and I really don’t care what commercial benefit you’re losing. But I think the customers will benefit by drinking loose leaf tea. It’s a pure, natural drink.”

An increasing number of specialty tea houses also are cropping up in the GCC, and Dilmah is among them. It already has three branded tea lounges in Kuwait offering tea-infused mocktails and food and Fernando says there are plans to open in Ibn Battuta Mall in Dubai in October.

Under the brand Resplendent Ceylon, Fernando’s tea-making family also operate four resorts in Sri Lanka, each of which showcase Ceylon tea country and boast Dilmah afternoon teas.

Today Dilmah is among the top ten tea brands in the world according to sales, but Fernando insists market share is not his priority.

“At the very beginning I said, I do not and will never aspire to become a big player. But I am aspiring to be the best player. And now Dilmah is the best player in tea in the market,” he says.

“I’m not worried about volume, volume will come when they realise that there is better tea that can be enjoyed.”

And that, tea drinkers, is worth sipping to.

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