Dilmah Tea – a staple of Australian kitchens since founder Merrill Fernando made his first deal with Coles in 1985 – is in crisis Down Under.
Australia was the first country to which the Sri Lankan brand expanded with its packaged tea – rather than bulk – which is now sold in 104 countries around the world.
While Dilmah remains the 10th largest tea brand in the world, it hasn’t made a penny in Australia since 2009.
Chief executive Dilhan Fernando told Daily Mail Australia that Dilmah is still operating in Australia because of the “gratitude” the company owes the country.
“We have a very sentimental relationship with Australia because my dad (Merrill) launched Dilmah there,” he said.
Dilhan Fernando, CEO of Dilmah Tea, pictured left with his father Merrill, the company’s founder
Workers are hand-picking tea leaves at a Dilmah tea plantation in Dickoya, near Hatton in the Central Province of Sri Lanka
“We owe the Australian consumer a huge debt of gratitude, that’s why we’re following… what on the outside seems like a foolish decision to stay on.’
Mr Fernando said Dilmah has been loss making in Australia for so long because they refuse to cut quality to provide the big discounts retailers expect.
How strong discounts affect producers and their employees
“I wouldn’t say it’s just the retailers, I wouldn’t say it’s just the consumers,” said Dilmah chief executive Dilhan Fernando.
“It’s just consumer sensitivity to discounts.
Black Friday sales (pictured) are ‘terrible’
“Things like Black Friday are terrible because those 70 or 80 percent discounts aren’t funded by the e-commerce engines.
‘They are financed by the workers, by the brands and ultimately it affects the producer.
‘So we have to focus on quality, because with tea the difference between a mediocre and a good product is two or three cents per cup.
“It’s not like buying a car or a luxury item.
“It’s affordable, but that can have a huge impact on workers’ lives.”
“You can go into any store and you’ll find yourself lured in with 50 percent off, 40 percent off.” But if you focus on quality, that’s really not an option,” said Fernando.
‘It’s not possible, because in the end any reduction comes at the back of the employees or at the back of the environment.
“And if you refuse to compromise, as my father insists that we uphold our principles, it’s very difficult in this current environment.”
He said giant supermarket chains operated a “fundamentally unfair trading system” when dealing with producers and manufacturers.
“I have to stress that it’s not just Australia, it’s a structure of retail in general,” he said.
When the global financial crisis erupted in 2008, stores introduced “an increasingly unfair system for producers” that can reduce their ability to help their employees and environmental responsibilities.
“Our expenditures to ensure our product is sustainable, integrate worker and community livelihoods, and be at the forefront of climate change require significant investment,” said Mr. Fernando.
Sri Lanka, like Australia, has experienced both floods and droughts in recent years, each of which affected tea crop yields.
Mr Fernando said Dilmah and its producers were working to mitigate climate change and address food security priorities of increasing concern around the world.
“The (retail) system worldwide is at odds with this, because the producer needs a fair price,” he said.
“But ultimately the consumer is at the top of this chain and it is the consumer’s responsibility to pay a fair price.”
The refusal to offer discounts that would only be possible by cutting quality has resulted in Dilmah’s shelf space shrinking for more than a decade.
However, Fernando does not blame the supermarket chains for this.
“I think instead of being a deliberate attack on Dilmah, it’s instead the fact that the brands are willing to discount and are willing to come to the party when it comes to big discounts, which we don’t realize can afford and of course they get more time in the sun,’ he said.
Pictured is a still from the iconic 1988 Australian ad for Dilmah Tea featuring Kamahl
Giant supermarket chains operate a ‘fundamentally unfair trading system’ in their dealings with producers and manufacturers. Pictured are some Dilmah tea products
Dilmah tea launched a massive television advertising campaign in Australia in the late 1980s. Pictured is a still from one of the ads
Dilmah’s market share in Australia has halved since 2010 and its future here is at stake, but the company is hopeful it can turn things around.
“This year will be a decisive one (for the presence of Dilmah in Australian supermarkets),” Fernando said.
“Fortunately, we’ve been negotiating for the past few weeks and the retailers in Australia are probably significantly better than the many we’ve dealt with around the world.”
He said recent publicity, including a Daily Mail Australia article about the brand’s declining shelf space, has led to “a significant change in attitudes and attitudes” from Australian supermarkets.
It highlighted the situation. We had consumers reach out to us and show their support,” he said.
“And I think it’s mostly raised the issue of producers.”
Mr Fernando said he was aware that domestic producers, particularly milk suppliers, have also raised concerns and explained their costs to consumers.
Dilmah’s packaging has changed over the decades. Pictured is a package from the 1980s
Chief executive Dilhan Fernando said major supermarkets are ‘demanding discounts’ and refusing to pay a premium for their handmade, single-origin Ceylon tea bags (pictured)
Dilmah’s market share in Australia has halved since 2010 and Australia’s future is at stake, but the company is hopeful it can turn things around. Depicted is a worker picking tea
Dilmah has pulled out of a country in the past due to rebate demands.
The Irish distributor was taken over by an American multinational who expected a lower price, but Dilmah refused and said it did focus was on quality and it would not compromise.
The teas are no longer sold in Ireland.
Australian Dilmah drinkers probably have nothing to worry about.
“We have an emotional connection with Australia and Australians, that’s why we keep going,” Fernando said.
The History of Dilmah Tea in Australia
Dilmah has been a staple in Australian kitchens since it was first sold here in Coles in 1985.
Company founder, Merrill Fernando supplied tea in bulk to many Australian importers and said packing it in-house was a logical extension.
Dilmah tea (pictured) has been a staple of Australian cuisine since 1985
Initially, the company did this for private label teas, such as supermarkets’ own lines.
But then he got the idea to offer his own brand, which he named Dilmah after his sons Dilhan – who is now the CEO – and Malik.
“It wasn’t easy because at the time it wasn’t common for a grower to market his products directly, so he had a very challenging time,” said Dilhan.
‘But in September 1985, by the grace of God and the Australian consumer’s reception for tea picked and packaged at source and not blended, Dilmah was born in Australia and has since gone to nearly 100 countries.
“Of course we’re not big, we’re a niche and people say we’re in the top 10 in the world, but we keep our quality and we’re still a specialty tea in most markets.”
The success of Dilmah has made it possible to build many schools and two hospitals in Sri Lanka.