ISSN: 1391 - 0531
Sunday September 23, 2007
Vol. 42 - No 17
Financial Times  

Opportunity for Sri Lankan brands to develop

The Tea Exporters Association says the tea industry in the country will be sustainable the way it is heading now as the Colombo Auction prices are the highest and currently selling over US$1.50 per kg higher than other key export auction centres such as Kenya.

“This is due to Sri Lankan-owned companies establishing their own ‘brands’ and distributing retail products which are well established in many countries. Sri Lankan owned brands are particularly strong in developing markets -C.I.S and the Middle East-which are large tea consuming regions but need funding for marketing, distribution and Brand development which the government has recognised and likely to address in the next budget,” a senior official of the association said.

He said that building more Sri Lankan owned brands to supply new and developing markets and different segments should be the focus area while fully exploiting the inherent preferred characteristics of ‘Natural’ Ceylon Tea from the different tea growing regions of Sri Lanka. “The state should also support the differentiation through further research on the levels of Bio-chemical properties present in tea that has positive health benefits,” he added. He said that considering that world consumption is in excess of three billion kg and international brands supplying the majority of the mass market consumer needs with multi origin blends in tea bag format, there is a business opportunity for Sri Lankan brands to develop and earn more foreign exchange. “The mass market demand seems to be more on a staple food or traditional beverage concept delivered as a consistent quality, convenient, value for money product which can only be achieved through multi origin blends. There is simply very little middle of the range tea bag type tea in Sri Lanka to cater for this world demand and whatever better quality Ceylon Tea bag type tea must only be sold as a Pure Ceylon product for the higher end consumer and realise the maximum value,” he said, adding that this blending and re-export sector must be clearly segregated and monitored effectively to ensure that there is no negative propaganda on the " Pure Ceylon Tea" product image.

He noted that Dilmah has been an established brand recognised in many overseas markets for over thirty plus years and their vision, personal efforts and industry support in the form of the Sri Lanka Tea Board promotion funds have certainly being of help to achieve this envied position. “This is the kind of investment that Ceylon Tea ‘Brands’ expect the government to make soon to ensure the best return through Tea for Sri Lanka and a great future,” he said.

However he also acknowledged the individual efforts of Dilmah, Mlesna (both - the largest exporters in the value added segment), Akbar Brothers through its brands Akbar and Al- Ghazalean, Imperial Teas with Impra, Jafferjee Brothers, HVA with Heladiv, Mabroc, Regency Teas with Hyleys who have all achieved a great deal for Sri Lanka.

“So the brands are here and more support and investment in sustaining these ‘brands’ in a fiercely competitive beverage market and to exploit the younger consumer needs through new products particularly ‘Ready to Drink’- natural healthy products, is absolutely essential,” he said.

Marketing of Ceylon Tea

Michael de Zoysa, Chairman, Gordon Frazer Company, says Ceylon has never lost a market but the market has lost Ceylon because ‘our’ teas are too expensive and a market that can afford Ceylon buys the product.

He said the sustainability of the tea industry depends on the cost of production. “We are the highest cost producer in the world. Energy, fertiliser and labour take up more than 70 percent of the cost of production. A lot of our land is eroded and not fertile. So we need to first focus on agriculture and bringing down cost for the industry to be sustainable. Labour conditions have improved beyond recognition since privatisation and the private factory owners compete for labour with the private management companies by making available transport, accommodation, health services, advances, etc,” he said, adding that to build a brand is a highly expensive, long hard process and Lipton, Twinings, Tetleys, did not get there overnight.

He noted that the Ceylon Tea exporter does not have the funds available to match the big brands so the focus should really be on Ceylon Tea and a combined market strategy. The Tea Board budget is totally inadequate. "The Cess funds are not made use of adequately or properly for this purpose, in fact they are misused by the Treasury,” he said.

“We need to focus on branding because whilst our teas are the most expensive in auction against other origins there are opportunities which are not made use of,” he said. De Zoysa said that in marketing our ‘own’ tea brands ‘we’ should blend with other teas rather than let the Dutch, Germans, Russians and so on and buy ‘our’ teas mix with others and have their own brands in the market. He said that Dilmah has succeeded over a long hard road and Sri Lanka must be proud of their success but they are still extremely small in terms of the world market and likewise, Mlesna.

Nibras Bawa, CEO and Chief Strategist Intimex Consulting, whose core solution areas include export strategy, international marketing and international market entry, said that Ceylon Tea has long lost its ability to sustain itself in the global market. “Sri Lanka never looked at its tea industry strategically. Only in the recent past there have been some attempts, more as a desperate survival mechanism. It was a surgery before the last breath. Many reforms with the participation of all concerned should have taken place long ago,” he said.

Bawa, whose company is working on globalising a local tea brand, added that the glory and heritage of the Ceylon tea alone is not going to help the industry, because it needs strategic direction to survive.

He said tea is a volume game given its status as the favourite beverage of mankind, only next to water and in that sense it is mass marketing with blending which is the clear strategy of Lipton. “However, given our teas are the cleanest and purest teas anywhere in the world, we should market our own brand of tea. If a multinational can make use of Ceylon Tea and make a brand that’s worth billions of dollars, there is no reason why Sri Lankan companies should continue to be bulk traders and exporters. We need a paradigm shift from tea trading to tea marketing and tea delighting,” he said.

He said that ‘we are making a mistake by setting up packing plants, blending our teas with other origin teas and selling to the world as ‘PURE CEYLON TEA’. When you use the word ‘Pure’, it should be 100 percent Ceylon. Sometimes in our desperate attempts to attract FDI’s we grant approval to such packing plants, not realising the long term effects of such investments. Not all investment is necessarily good for our tea industry, we need to be able to assess the long term effects as well. Every right thinking citizen of our country owes it to the country, at least we owe it to our future generations,” he said.

He said companies like LIPTONS made a name purely based on CEYLON TEA and now riding that success, it sells a mix of teas as CEYLON TEA. “Multinationals source tea from various origins due to logistics and economics. Lipton is not fresh tea. It (Ceylon Tea) lies in warehouses for months to be blended with teas of other origin at Unilever warehouses worldwide. True to their multinational spirit, they still market it as Ceylon Tea and get away with it. However, this can be stopped, if our companies follow the pioneering efforts of Dilmah,” he explained. He said that consumers do recognise the taste difference between Dilmah and Lipton, which has been the main reason for Dilmah’s success. “Discerning consumers would also pay a premium for tea that is fresh, clean and authentically refreshing. Dilmah is arguably the most expensive tea brand in the world,” he said.

He said that though the tea industry in Sri Lanka is the most ethical amongst other producing countries, external certification and identifying the product through consumer accepted logos on the pack is the way forward. “This will ensure demand and thereby a better price in wider markets although the concept was initially to differentiate for niche marketing and consumer needs,” he further said.

He said that setting up packing plants, blending local teas (small component because it is expensive) with other origin teas and selling to the world as “PURE CEYLON TEA” by some tea packing companies could only be negative propaganda as the Sri Lanka Tea Board monitors the importation for blending and re-export diligently.

“As someone mentioned recently this is like flogging a dead horse and a waste of time. The world has moved on and our ‘Sri Lankan Brands’ have done extremely well and established themselves in the global market as Pure Ceylon Tea brands,” he noted, adding that international brands such as Lipton, Twinings, Tetley, etc are all owned by reputed companies with strong commitment to business ethics and CSR and are competing fiercely in the beverages market and promoting tea which all tea brands can benefit from and will not exploit the generic appeal for ‘Ceylon Tea’ by selling a mix of teas as Pure Ceylon Tea.

He said that these internationally renowned brands can only sustain or grow their business through customer loyalty and promise as to what they say they deliver as a product and not by false claims. “I am sure their blended products are only sold under their ‘brand’ name as tea and not as origin specific tea,” he said, adding that as mentioned in a presentation made at the Sri Lanka Tea convention recently, Unilever owned brands ‘Lipton and Brooke Bond’ distribute globally approximately 300,000 tons of tea (which is almost Sri Lanka’s total tea crop). “Therefore will ‘Lipton’ the world’s largest tea brand credibly sell all its tea as Ceylon Tea? No way, but an international market intelligence survey will be the only answer,” he said.

A spokesman for A.F Jones (Exporters) Ceylon Ltd said that the tea industry is sustainable the way it is handled now, but it is also in the midst of several challenges such as the competition Sri Lanka is getting from other producer countries. “Ceylon Tea label was considered as the best tea producing label, but it has been allowed to fade out over the past 30 years. We have this ‘tendency’ to believe that we produce the best teas and because of that we had a ‘if you want you buy’ attitude. This approach has been detrimental to the industry,” he said.

“We have not done generic promotions on tea as generic brand despite there being over 350 tea exporters in the country. SLTB collects a Cess on tea exports but this should be used to build the image of tea and keep it on the top of the minds of people,” he added.

He said that both mass marketing and marketing Ceylon Tea as generic brands should take place. “We should have 100 percent ‘Pure Ceylon Tea’ as a niche, but at the same time the average customer tea market has been diluted so much that he wants a cup of tea at an ‘affordable’ price. So we need mass marketing as well,” he said.

Rohan Fernando, Chairman HVA Group said that because there is a shift taking place to value addition teas all over the globe, we need more ‘Sri Lankan’ branding. “Sri Lanka is doing the highest value addition in the world which as much as 35 percent of tea. It is not a healthy thing, but this is the shift globally,” he explained.

He said annually the world consumes 3.5 billion kilos of tea. “Out of this, 100 million kilos is ‘Prime Ceylon Tea.’ We should be able to blend Ceylon Tea and create a brand, because that is how we can compete in the world market,” he said, adding that the country needs to have flexibility to have ‘Ceylon Tea’ in a niche market. He said that Sri Lanka should have total control of ‘our’ tea cup.
Fernando pointed out that in the early years there were “French wines” and ‘Scotch Whisky”. “Now you ask for the Black Label or Chevas Regal. The selling point is the brand, whilst keeping the origins in mind,” Fernando said.

Anil Cooke, CEO Asia Siyaka Commodities said that when one takes the tea industry as a whole, the sustainability of the estate sector is under threat.

“Sri Lanka is a high cost and specialty supplier of tea to the world and therefore it has little future in a mass market, low cost environment. Being a large player in a small high value niche is a good place to be, because there are signs that this niche is growing and that it is a sustainable market globally,” he explained.

 
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