Entering Australia, early resistance and the platform for Dilmah’s success

(Excerpted from the Merrill Fernando autobiography)

Australia and neighbouring New Zealand feature very prominently in my story as it was in Australia, in 1985, that I launched ‘Dilmah’ as a brand. I was familiar with the markets in those two countries as I had been exporting to both since my early days in the export trade. I had also made very useful connections during my days as one of the major bulk tea suppliers from Sri Lanka to Australia.

The late Bill Bennet, who, in the early 1950s trained as a tea taster at Heath & Co in Colombo, where he represented Bushells’ interests, became a good friend. A very friendly, large-hearted man, at that time he was also very much a mentor to me. Later, he joined his father in the family tea company, H. A. Bennet & Sons in Australia and, eventually, became its owner. He sold much of my bulk tea in Australia.

In my move from bulk to branded tea, his advice and guidance were invaluable. As was the case with many of my business associates, he and his family became very close to mine. For close upon 50 years, we never failed to meet on my visits to Melbourne, Australia. I was deeply saddened by the recent passing of this gentle and generous man.

Bill introduced me to his brother, Peter, and Jack Sholer, who owned the Australian Tea & Coffee Company, which used to supply private label tea and coffee to supermarkets. Since the demand for tea bags was growing and their factory was unable to meet the production increase, they turned to me for help. It was a very useful opportunity for me as, soon afterwards, I made a major breakthrough when I was awarded the contract to pack ‘Farmland’ tea bags for G. J. Coles, then the largest supermarket chain in Australia.

Initially, as I will describe in a subsequent chapter, my export initiatives of value-added tea were inhibited by restrictions on shipping opportunities and the differentiated freight rates for bulk and value-added tea. Those issues had to be resolved with a mix of confrontation, subtlety, and influence leverage and, after a long battle, I was able to achieve a reasonable parity.

In 1977 I acquired two tea bagging machines at a cost of around USD 500,000, but for about two years I was unable to generate any business. Eventually, after relentless promotion on my part, personally carried out, I obtained a decent opening in the G. J. Coles supermarket chain. I developed private labels for Coles, Woolworths, Franklins, Safeway and other smaller supermarket chains, within a year.

Max Currie, Head of Tetley and Lyons Australia, and I, established a very good relationship and I supplied him with tea bags under the Tetley label. I also encountered episodes of sabotage of my tea, most likely by his staff, as they would have feared that Max might transfer all the Tetley business in Sri Lanka to me. I went across to Australia and proved that a cigarette butt, which was allegedly found in one of my packs from Sri Lanka, would, most probably, have been introduced at the Aussie end, as that cigarette brand was not available in Sri Lanka! Eventually, after they secured their own tea bagging machines, I stopped supplying that label.

This was also a period of stringent exchange control regulations. Spending money abroad, even for genuine businessmen, was restricted to 10 pounds sterling per day for a 21-day maximum. Max was aware of this issue and was always generous to me with spending money, which was very useful. Despite my protests he continued this practice even after controls were relaxed.

Family ties in business Romeo and Drake of South Australia

Max was also the Chairman of the Victoria Economic Council, a very influential position in a Labour Party Government body. He offered me some very generous concessions, including a proposal for me to transfer tea bagging machines and to set up an operation in Melbourne, for which he would find the necessary land. He also offered me funding through the Economic Council. However, I explained to him that my philosophy was to provide employment in my country and to ensure that the benefits of value addition would remain in Sri Lanka.

His wife, Meris, too became our friend as she was especially fond of both Malik and Dilhan. She presented them with lovely sweaters and other woollen clothing when they were schooling in England. Max moved on a few years ago but Meris continues to live in Melbourne and I do not fail to meet her whenever I visit that city.

Why Dilmah?

`DILMAH, ‘the brand name that now symbolizes Quality Pure Ceylon Tea in over a hundred countries, was coined by combining the names of my two sons, Dilhan and Malik. When I linked the names of my two sons to my brand, I was demonstrating my commitment to my promise to deliver a quality product at a reasonable price, and the credibility of my pledge to the customer. My brand was as part of my family as my two sons were. In retrospect, despite the early setbacks and the initial misgivings of advertising and marketing experts about the potential of a brand name, which, in their view, did not seem linked to tea, it proved to be one of the best marketing decisions I had ever made.

The trial launch took place in 1985, in Australia, with a decent-looking but by no means impressive pack. This was well before the art of the graphic designer and five colour printing. I designed my own pack and first called it ‘Dilma’. I was then 55 years old and close to the age when most people retire!

My friend Gamini Goonesena, formerly a famous cricketer both in England and Sri Lanka, was then working for the Australian advertising agency, appointed by the Sri Lanka Tea Board, as the official media company for the promotion of Sri Lanka tea brands in Australia. Gamini helped me source a distributor, Aeroplane Jelly, a small, family-owned, jelly-producing company. I selected it because they had good access to the retail trade, especially in New South Wales.

However, I made slow progress with them and it soon became clear that the challenge of marketing a new product category like tea, in a highly-competitive environment, was beyond their capabilities. Therefore, I moved to Mauri Foods whilst George Patterson, a leading advertising agency, re-designed the package, which remains much the same to this day.

Patterson developed a new campaign strategy, with one of the first key initiatives being consumer testing of the brand name, ‘Dilma’. The results indicated that ‘Dilma’ did not have sufficient punch to create significant brand awareness and visibility. There were doubts about its appeal to a highly-sophisticated market like Australia. However, the creation of a new brand name was out of the question; quite apart from the sunk costs and the prohibitive additional cost of rebranding, my sentimental attachment to the brand name precluded any such consideration.

Finally, following rigorous consumer testing, it was decided to add the ‘H’ at the end of ‘Dilma’ and rebrand as ‘Dilmah’. Thus the brand was born. It was relaunched with a new packaging design, which was printed in Singapore to ensure highest quality in presentation.

Early struggles

I came up against stiff resistance when I tried to find a supermarket chain which would give ‘Dilmah’ space on its shelves. The Coles supermarket chain buyer whom I approached maintained that he was happy with the tea brands he was already selling and that he did not see the need to add to the portfolio of selling brands which had been around for generations. I had many friendly arguments with him, trying to get him to understand that big brand owners were simply looking for profit, without any concern for the consumer, who is driven to buy whatever is on the shelf, regardless of the quality of the product.

I tried to convince him that what was on the shelf was commodity tea and that whilst the brand names remained the same, the contents had changed and the consumers, who had been weaned on quality Ceylon Tea, were now being deceived by an inferior product. Finally, either convinced by my arguments or simply to appease my insistence, he accepted two Dilmah products and put genuine, quality Ceylon Tea back on the Coles supermarket shelf.

It was also a watershed moment in my life as a tea entrepreneur; for the first 38 years I had been supplying tea in bulk to blenders and packers around the world. With the launching of my own brand, ‘Dilmah,’ I took the first steps towards the fulfilment of a promise I had made to myself, as a young man in his novitiate in the tea trade.

Initially, despite my long experience in tea and my knowledge of multinational marketing strategies, I was still a bit naive. It was my intention to price Dilmah 20 cents above the market leader, but the Coles buyer would not agree. In deference to his opinion and advice, I priced it at AUS Dollars 1.89, 10 cents less. I was delighted with what I had achieved, in ignorance of what was to follow.

As Dilmah was relatively small, unknown, and, in my perception, posed no threat to the established multinational brands, I never expected a reaction from them. However, the then market leader discounted its tea to AUS Dollars 1.49 at the very next promotion. I was both disappointed and dispirited. I assumed that my long-held dream to bring Pure Ceylon Tea back to the consumer would have to remain as such. I fully expected Dilmah to be taken off the shelves when it came up for review three months later.

The Dilmah philosophy was a threat to the multinational operational style. The foundation of the latter, a well-entrenched colonial concept, is to subjugate the producer by acquiring his product in bulk, as a raw material, and to add real value by branding, packaging, and marketing elsewhere. Dilmah had broken that mould by adding that value in the country of production itself. If many others were to follow that example, the mass market traders’ business would be at serious risk. Hence, the immediate retaliatory response in Australia, which included aggressive media campaigns mounted by Lipton, Bushells and Lanchoo the then market leaders to counter my entry in to the Australian market with Dilmah.

Nabi Saleh: a chance meeting led to a lifelong Friendship

Therefore, in the background of an envisaged worst case scenario, I was rendered speechless when, at my next visit to the Coles buyer, he said: “I have good news for you.” Apparently, never before had he received so many messages from happy customers, as he did about Dilmah, commending the product. The callers had thanked Coles for bringing real Ceylon Tea back in to their cups. That marked the beginning of the Dilmah success and the confirmation of my long-held belief, that if you deliver good quality consistently, the consumer will extend patronage. The brand is built and sustained by the happy customer.

Australia was a market with other, inherent advantages for a proposition such as Dilmah, as that market offered many house brands and generic packs, largely of Ceylon Tea. Whilst all such packs were under importers’ brands, with suppliers and origins changing from time to time, it was still an important part of Australian business and a pattern of trade and distribution common in other Western countries as well.

The opportunity given to me earlier, to provide such house brands and generic packs to retailers, gave me an invaluable insight in to the dynamics of the Australian tea market. That experience with the distribution system, and my connections with the retailers and their management, enabled me to very effectively introduce my own brand later.

Having first worked with Mauri Foods, I moved to Cerebos Australia whilst working with a few other foodservice importers. Subsequently, with the sales of Dilmah gathering momentum, I set up ‘Dilmah Australia’ as a company and a marketing platform, to operate in association with Broker Counterpoint Marketing Services. The latter functioned as regional brokers whilst we managed the customers and logistics through a logistics company. I recruited Cindy Dean, wife of a good friend, Ishan Ratnam, as the General Manager of Dilmah Australia. Thus, with my own team in place, I was beginning to achieve my goals for Dilmah in Australia.

However, I found that our distributors did not always share my passion for Dilmah and, as a result, I had to constantly review marketing strategies and distribution arrangements. One disappointing experience was with Valcorp, in 2008. I found that this company, headed by John Valmobida, did not possess the competencies and attributes necessary to drive Dilmah with the kind of energy that I liked to see. Finally, when we were unable to arrive at a resolution of issues regarding distribution of Dilmah in Sydney, Valmobida suggested that the operations agreement between us be cancelled.

I immediately agreed and resisted all his subsequent attempts to change my mind. From then on, having given Valcorp a couple of months’ grace, we set up our own distribution, eventually managed by Rohan Meegama, the son of my Shipping Manager when I was at A. F. Jones. Rohan was the Warehouse Manager for Valcorp and, despite the misgivings of both colleagues and friends, I set him up in the warehousing business on his own and entrusted our distribution in Australia to him. He has been doing an excellent job ever since.

Consequences of stress

That was a particularly trying time for me personally as, under the strain of resolving problems that were cropping up in all the major cities in Australia where we were in business, I actually fell physically ill. I was flying between cities almost on a daily basis and as a result of developing a seemingly unquenchable thirst, consuming large quantities of lemonade and other carbonated drinks. It was one of the most stressful periods in my life.

After a very strenuous spell in Australia I returned to Colombo soon afterwards, flew to London, still feeling terribly unwell but understanding the reason. A couple of days after I landed, the late Daya de Silva, then my doctor in London, diagnosed that I had come in for Type 2 Diabetes! An incipient condition had been triggered in to a major health episode by work stress. He wanted to immediately hositalize me but agreed to let me stay at home on the strict understanding that I would ring him twice a day, to personally report on my condition.

In the launching and promotion of Dilmah tea in Australia, I had to contend with humiliation, disappointment, and interventions designed to damage my progress. In addition, there was also opposition from people in Sri Lanka itself. However, whilst I was deeply shaken by the fierce and often unscrupulous competition from the multinationals, I was also inspired by the welcome reception to the concept of a quality tea that I eventually received from the supermarket buyer and the consumer. My persistence at that level paid off and resulted in supermarket chains agreeing to stock my products.

A refreshing counterpoint to the initial hostility I faced in Australia was the friendly reception, from the Romeo & Drake families of Adelaide, both running independent supermarket chains in South Australia. My association with these two families goes back to over 40 years. In the charming nature of such close-knit, traditional family businesses, very much like mine, the relationship has been extended to the second and third generations.

Rodney Arambawela, a proactive official

Rodney was Sri Lanka’s Tea Commissioner in the Middle East (Gulf Region) from 1975-1982. During this period of service he was stationed in Dubai, before it became the sophisticated and modern centre of business activity that it is today. I got to know him then and shared with him, my ideas for the launch of a Pure Ceylon Tea brand of my own.

In 1982, during Major Jayawickrema’s period as Minister of Plantation Industries, Rodney was appointed as Tea Commissioner to Australia, New Zealand, and the Pacific Islands. His appointment came at a time when the market for Ceylon Tea in Australia had declined alarmingly, with Australian packers opting for cheaper tea from different origins, more suitable for tea bags. Rodney’s remit in Australia, as defined by the minister himself, was to strategize the revitalization of the Ceylon Tea market in the country.

Apart from my own knowledge of the Australian market, the market research that Rodney conducted after assuming duties in Australia, provided statistics which were very helpful in the launch of Dilmah in that country. He was also very supportive in the early promotional campaigns and took an active part in the related activities. His proactive response to the project, and his enthusiasm for its successful implementation, was in complete contrast to the passive and often obstructionist attitude of some of the members of the Secretariat in Colombo. After leaving the Tea Board in 1988, Rodney reverted to an academic career but still continued his promotion of Dilmah in various forums. His assistance to the cause of Dilmah in Australia has been invaluable.

Nabi Saleh my friend

My story of Dilmah in Australia would not be complete without mention of Nabi Saleh, a highly-educated, Iranian-Australian businessman and commodities trader. I met Nabi, quite unexpectedly, about 40 years ago at the Franklins Supermarket, Sydney, whilst we were both waiting to meet the same buyer, Michael Hansel. We were competitors at first. but later became trade associates and, more importantly, good friends.

Nabi was then a private label supplier to Franklins and other distributors. through a small-time packer in Indonesia. After that first meeting. Nabi bought private label tea from me as well. In 1995 Nabi became the owner/Chief Executive Officer of Gloria Jean’s Coffee, a venture he developed into a worldwide success. Nabi admired my vision for Pure Ceylon Tea and was of assistance to me in establishing Dilmah in Australia. Like me, Nabi is also a man of great faith.