Business Times

Dilmah to create new luxury resort brand

Top tea producer steams ahead with expansion in tea, leisure sectors

The MJF Group which has Dilmah tea, reputed to be the largest single original pure Ceylon tea in the world, under its belt is expanding rapidly into leisure (currently the most lucrative sector) and widening its traditional tea sector base.

Plans are underway to expand its exclusive Ceylon Tea Trails brand with a fifth $2.5 million bungalow, expected to be ready for winter 2013. The Group’s maiden beach resort, the $25 million Cape Weligama in the south, has commenced construction and is expected to be ready by early 2013, according to MJF Group founder Chairman Merrill J. Fernando.

The group has a leisure land bank in the hill country, east coast and cultural triangle and is working on creating a Sri Lankan luxury resort brand with 5-6 more boutique resorts in the pipeline, apart from Tea Trails and Weligama properties.

In an interview with the Business Times which dealt with future plans of the company, he said the Group has planned significant investments of upto Rs 1 billion in tea packaging machinery and facilities at its Peliyagoda facility in a bid to support increased demand for Dilmah tea.

He expressed optimism that the proposed private sector-led $10 million Ceylon Tea global promotion campaign, if effectively implemented, will boost demand for Ceylon Tea by recreating awareness of the quality image local tea once enjoyed.

The campaign will also target unscrupulous packers overseas who pass other teas off as Ceylon Tea and damage its image and impact demand, the pioneer tea industry entrepreneur, who has fought for decades to boost the Ceylon Tea image in the global market, he added.

Ceylon Tea Trails currently has four bungalows with a total of 20 rooms in a resort partnership with Bogawantalawa Tea Estates. The Weligama, 12 acre - 40 villa luxury resort is located on a 30 metre-cliff with stunning 270 degree ocean views. “Thanks to a reef and the southern facing, year round sea swimming is possible,” says Mr. Fernando.

Famous Thai Architect Lek Bunnag, who counts several Four Seasons and Ritz Carlton resorts to his credit, has designed Cape Weligama. Talking about his pet subject – tea, Mr. Fernando said although there has been a slowdown due to recession and turmoil globally, he expects demand to grow in 2012.

“The Tea Board has not advertised Ceylon Tea for the last decade or more. However Dilmah has spent Rs 10 billion during this period to promote Ceylon Tea and this investment benefits all exporters who should ideally have followed a similar premium strategy. Most chose to ride on the awareness Dilmah re-created but sell at low cost. It is this ‘sell cheaper’ strategy that has led to the current predicament where we have few genuinely value-added tea brands and a focus on trading as opposed to marketing and brand building,” he noted.

He said if the national average export price matches Dilmah’s, Sri Lanka’s earnings from tea would grow from $1.5 billion annually to $3 billion. Explaining, he said the country average FOB is Rs 450 per kg while the Dilmah average is Rs 900 per kg.

With its own offices overseas, Dilmah’s eventual revenues are approximately $200 million.
He stressed the need for investment in replanting tea fields to bring costs down and improve quality. Past high interest rates and high labour costs have deterred replanting amongst companies and smallholders alike. For this, he says, it is critical that the government offers a long term funding package like in India, bearing in mind the socio-economic importance of the sector and the inability to fund such a long term program with internal funds or borrowing at commercial rates. He also stressed the need to remove present obstacles to commercial forestry.

Referring to the group’s role in tea promotion overseas, Mr Fernando said Dilmah pioneered the Dilmah School of Tea in May 209 which has affiliations in Lyon (France), Prague. The main objective of the Dilmah School of Tea is to create greater understanding amongst culinary and hospitality professionals of tea and tea inspired cuisine. The company is also opening a School of Tea in Warsaw in January 2012.

Mr. Fernando believes that the logical way to market a high cost, high quality product like Ceylon tea is to position it as a luxury item and not price-led trading and supplying under foreign traders’ brand names which, sooner or later, become major competitors of Pure Ceylon tea, as history would reveal quite clearly.

It is this inappropriate strategy for Ceylon tea, according to Mr. Fernando, which has led to some exporters lobbying for imports of cheaper tea to Sri Lanka, to service foreign owned brands and local brands that trade on price. This is in essence a valu reduction strategy and not value added.
“Foreign brands packed here create very unfair competition for Ceylon tea in the longer term. They exploit the positive perception of Ceylon tea among consumers long after they cease using Ceylon tea. These brands build their quality image by initially relying on Ceylon tea but move to multi origin blends eventually to save cost. It is usually at this point that local packers lobby to allow cheap tea imports, citing the risk of losing of yet another ‘important foreign brand’ who wants to leave due to regulatory hurdles, Mr Fernando said.

Ceylon Tea has lost a series of markets from the UK and traditional ‘empire’ markets, then Egypt, Pakistan, now Russia and the CIS, largely as Sri Lankan exporters supplied bulk tea or foreign brands and are unable to control the contents of a pack of tea. “We are now left with a handful of markets, which will also be lost in time. Clearly, our exporters have been unable to do justice to the growers of Ceylon Tea,” he said.

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