Financial Times

Dilmah developing ready-to-drink tea
The MJF Group, known for its Dilmah Ceylon tea brand that has been successful in key overseas markets, is expanding its network of trendy t-bars, the upscale tea 'cafés' styled like cocktail bars.

The family managed group, whose only quoted company Ceylon Tea Services has just reported doubling profits in the nine months ending December 2004, is also developing a ready-to-drink (RTD) product.

"We're opening t-bars soon in Singapore, Canada and the UK," Dilhan Fernando, marketing director of the MJF Group, told The Sunday Times FT. The group now has 75 t-bars in Italy, the Maldives, and the United Arab Emirates and last week opened one in Colombo at the Water's Edge.

"This is an entirely home grown effort," Fernando said in an interview. "We're targeting six t-bars in Canada and about 15-20 in the UK." Although profits from the t-bars are marginal right now, Fernando expects them to make a "significant" contribution to the bottom line of CTS in two year's time.

CTS has announced net profits of Rs. 444 million for the nine months ending December 2004, up 109 percent from the year before, and declared a 40 percent second interim dividend.

The t-bars offer innovative cocktails laced with different types of teas. The concept was started with the aim of promoting tea among a new generation of consumers, especially young adults, and giving the beverage a fresh lease of life. Most traditional tea drinkers were elderly and the market was in danger of shrinking.

Fernando said the company was taking a traditional product and giving it a contemporary feel with soft lighting and jazz music in its t-bars to attract young consumers ready to experiment with new products.

MJF Group's food technology laboratory is also developing an RTD tea. RTD teas are a fast-growing segment in Western markets. Fernando said the company has been working on an RTD product for three years and expects a commercial product by year's end. "We're developing a ready-to-drink iced tea that is natural, pure and healthy," he said.

"We will not use up the anti-oxidants in the tea and ensure that it tastes natural and has a shelf life of 18 months without adding chemicals." Most RDTs in the market have very little tea and also contain chemicals which are usually included as preservatives.

MJF Group's highest concentration of t-bars is in Italy with 69 such outlets.
The company went in with the aim of penetrating a difficult market as Italy is traditionally a coffee drinking nation where tea was drunk mainly for ailments.
"We selected the toughest market," explained Fernando. "We're trying to do something not done by anyone."

The company also has to comply with stiff European food safety and environmental standards and regulations.
It sets up the t-bars in business tie-ups with store operators with the emphasis on selecting the best locations.
Fernando said the company is promoting the concept of single origin Ceylon teas and aiming at niche markets.

Dilmah teas are more expensive than the usual mass-market blends of multinationals and are aimed at the upper markets.
"We do it in a very fashionable way. We take it right to the top, not mainstream, which is already crowded and price-sensitive," Fernando said. "Ceylon tea is the best - we can't sell it cheap."

The company is ready to wait years for the market to develop as well as spend on marketing.
"We don't expect overnight success - it takes a long time."

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