Dilmah Tea | Merrill Fernando

Beyond the
Merrill Fernando’s
Dilmah Tea has
become a global
brand selling in over

Tea Garden
80 countries. Now
the founder of the
flagship Ceylon tea
brand is addressing a
huge new challenge

28 |   AsianEnterprise | September 2007 www.asianenterprise.biz

 Merrill Fernando | Dilmah Tea

M
errill Fernando is a man with a
vision – a vision in which poverty
in the developing world is
eradicated and replaced by wealth
creating, self sustaining economies.
A hopeless vision, many might think, or
at least one that will take decades – if not
centuries – to become a reality.
But Fernando is no feather-headed idealist.
He is a hard nosed businessman who has
built the global brand Dilmah Tea out of the
ashes of a business taken from him under
nationalisation in Sri Lanka in the early 70’s
into a tea brand sold in over 80 countries.
He has taken on the world’s largest multi-
nationals, who are his jealous competitors,
and now he is challenging the trendy Fairtrade
concept which he claims is nothing more than
a yet another marketing middleman standing
between producer and consumer.
For Fernando’s vision is based on what he
has himself achieved in a business career that
is as long as it has been successful – building a
brand that is sold direct to the consumer and
reaping the rewards from the value added end
of the tea trade.
No only has he done so – along the way
establishing the first ever packaging plant in
Sri Lanka – but he has ploughed back much
of what he has achieved directly into the
communities that have sustained his business
through his Merrill J Fernando Foundation
helping with education, accommodation and
health care for his workers, their children and
many others.
Fernando boils with a silent anger when
he talks about the macro-economics of the
world’s economy. He believes that within a
generation the third world would no longer >

The Dilmah Tea gardens in Sri Lanka

are among the most beautiful in world

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Dilmah Tea | Merrill Fernando
need aid handouts from the opulent West if
their governments and the world bank made
some simple but radical changes to the way
they tackle the problem.
His main target is the World Bank policy of
only allowing aid to go into agri-businesses,
essentially. Into the production of more raw
materials that Western companies can exploit
still further and derive yet more profit from.
Instead, he insists, money should also be there
to help companies in developing countries
develop the value-added elements essential to
national economies. The profit made by the
multi-national middle men like Proctor and
Gamble, Nestle and Unilever should rightly be
made by producer nations.
Fairtrade, the “conscience” brand established
by a former Marxist priest in Latin America and
now franchised across Europe and America, is
little better than the multi-nationals, Fernando
claims. Western consumers are asked to pay
a premium for “ethically sourced” products,
only a tiny percentage of which finds its way
back to the producer who pays a licence for the
priviledge. For Fernando, Fairtrade is a triumph
of PR spin over substance.
After suffering a series of severe illnesses
in the last year which have served only to
reinforce his strong Christian faith, Fernando
is examining ways in which he can more
effectively campaign for and support the
development of local businesses through
his Foundation.
30 |   AsianEnterprise | September 2007
One approach is a direct one to Bill Gates
and Warren Buffett who between them have
donated over $50 billion to relieve world
poverty. But, Fernando fears, so much of
this may be wasted unless it is used to build
sustainable businesses that will inevitably
seek to loosen the stranglehold of first world
economies on their third world cousins.
The personal story of Merrill Fernando is
both intriguing and inspiring. He was born
in May 1930, in Negombo, a fishing town
on the coast of Sri Lanka. His father was a
Fairtrade, the ‘conscience brand’, is little better
than the multi-nationals, Fernando claims.
It is a triumph of spin over substance
local trader and his family of very modest
means. One of five children, he started life
with an American Petroleum company, as an
Inspector. Soon tiring of this, he was selected
for training as a Tea Taster, the first batch
of Sri Lankans to receive such training, and
travelled to Mincing Lane, London, then the
Mecca of the tea world.
Having worked in a UK tea company
Fernando returned to Sri Lanka and joined A
F Jones & Co., a British owned and managed
tea business. He became its Managing Director
within two years and eventually bought out
the British shareholders and ran the business
with another partner. He distinguished
himself at a tender age by supplying the first
ever consignment of Ceylon Tea direct to the
then USSR. Merrill was still in his twenties
and went on to establish Merrill J. Fernando &
Co., Ltd., his own business.
This company supplied bulk tea to most of
the world’s major tea brands in the 1960s and
1970s. With a combination of outstanding
service and value for money, Merrill rapidly
gained a strongly supportive clientele,
enabling his fledgling business to grow.
Merrill J. Fernando & Co., soon became
one of the top 10 tea exporters in Ceylon,
and the only Sri Lankan owned one to enjoy
this success. In the 1970s with the election
of a Socialist government, Merrill lost his
tea plantation to nationalisation, and with
increasing regulation, sold his business with
the intention of emigrating from Sri Lanka.
However this was not to be and persuaded
by friends he remained in Sri Lanka, forming
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another company, M J F Exports Ltd., in
August, 1974 and in the early 1980s registering
the trademark DILMAH with a dream of
eventually supplying pre-packed, value added
tea to his bulk tea clientele.
In the 1980s, Fernando imported the first
teabagging machine into Sri Lanka in spite
of discouragement and opposition from the
Tea Board and his clients. The machines spent
several years lying utilised below capacity as
Merrill faced the wrath of bulk tea customers
who believed that Sri Lanka should remain a
raw material supply source and Europe, USA,
Australia and New Zealand the value addition
points.
His vision was based not on the politics of
development but rather on the simple fact that,
by supplying consumers direct from origin, the
quality and freshness of tea could be improved,
without additional cost, in every market.
Naturally the multinationals thought differently
since their interests lay in sourcing product
from multiple origins regardless of quality, and
branding the commodity in a manner so that
origin would not be of relevance.
With the assistance of a few amongst his old
customers, Fernando gradually built up his
new business, and in 1988 his vision became
reality with the launch of DILMAH Tea (now
sporting an ‘h’ to balance out the appearance
of the brand) in Australia. Shortly thereafter
in New Zealand, and to date in 82 countries
around the world. Fernando’s sons have joined
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him in the business and Dilhan, graduated
from London, and Malik, graduated from
Boston, USA work with their father, sharing
his vision to deliver fresher and better quality
tea to consumers around the world.
Other tea growing countries are beginning
to follow in Fernando’s footsteps. His vision
now is that the value adding industry he
initiated will change the economy of some
Asian and African countries which place
reliance on tea for their prosperity. He has
changed a relic of exploitation to one of hope
and promise of a better life in the third world.
Fernando has a philosophy of sharing his
profits and his family wealth with others who
are less fortunate. Even in a small way, his
company will donate this year, over $500,000
dollars worth of tea pots and mugs to retailers
to be sold and proceeds to be donated to
local charities. Quite apart from benefiting
thousands of underprivileged people in several
countries, this has had the effect of creating an
awareness among others to spare a thought
to those deserving help. Dilmah Tea is proud
to support the Ronald McDonald Houses and
the Children’s Leukaemia & Cancer Research
Foundation in Australia as well as the Hospice
movement in New Zealand.
This benevolence is reflected in the
management of the MJF Group, with a strong
emphasis on staff welfare – in house medical
facilities with free or subsidised medication
for staff, financial assistance for the education
Merrill Fernando | Dilmah Tea
(Left to right) Merrill Fernando, founder of Dilmah Tea;
the Dilmah tea gardens in Sri Lanka; some of the workers;
Dilhan Fernando, his wife Serena, Kimarli (Malik’s wife)
and Malik
and basic needs of their children, and
themselves. Since the inception of the Group,
Merrill has maintained a tradition which
continues to this day of providing school
clothing and books for children of staff who
cannot afford them.
His philosophy goes further. As he says, ‘We
bring nothing with us and we take nothing
with us. Therefore the wealth we acquire
while we serve here, must be given to those
who work with us, to the needy and towards
alleviating poverty’. He has set an example
by establishing The Merrill J. Fernando
Charitable Foundation. Some of his wealth
has been transferred to the Foundation
already, and all of it will be transferred over
the next three years.
The Foundation began its work by
assisting a major project to provide breast
cancer screening facilities in Colombo,
where these facilities are today grossly
inadequate. The Foundation will go on to
build hospitals, orphanages, homes for the
elderly and schools, in rural areas where such
facilities are not provided by government.
Scholarships and grants for educational
purposes will be provided. Five Trustees will
administer the Foundation which is outside
his control now. >
September 2007 |  AsianEnterprise |   31
Dilmah Tea | Merrill Fernando
Millinda Moragoda, prominent Sri Lankan Businessman and political
commentator, interviews Merrill J. Fernando, founder of Dilmah Tea
and the Merrill J. Fernando Foundation
According to reports, you changed your career
from tea to oil. Can you elaborate on this?
I was first involved with tea and was trained
by Heath & Co. but at the time it was difficult
for a Sri Lankan to find employment in the tea
trade which was dominated by foreigners. I
received an exciting offer from an American
Oil company to be one of their inspectors,
which involved the opportunity to travel
island-wide and I took it up. After two years I
decided that I witnessed all I wanted to see in
the country and wanted to get back into the
tea trade which I did, after a two year break.
You developed Dilmah into a premium tea brand.
Today’s brands such as IBM, Pizza Hut, etc.,
dominate the world. In Sri Lanka you have gained
a reputation as a renowned brand, what are the
challenges you faced and how long did it take to
develop this brand?
These challenges were enormous and were
intimidating. When I became involved in
the tea trade as a boy of 22 years I realized
all the activities in the tea trade was upside
down. I couldn’t understand the reason
why a country which produces one the
worlds finest teas could not market it’s own
product. I observed how tea was exported
as a raw material worldwide. How it was
blended, branded, packaged and sold at a
comparatively higher price.
32 |   AsianEnterprise | September 2007
I recall that you mentioned in a seminar that Rs.
130 per kilo at the auction sells at Rs. 750 to the
retailer. Can you comment?
There are costs between the CIF price and
the retail price. My concern lies in the
fact that while our industry was suffering
instability and the prices of our teas were
below the cost of production at the same
time, the consumers bore high prices. It was
my wild dream – being the proprietor of my
own brand of tea which I wanted to make
sure will be the best Ceylon tea in history. At
that time I was 24 years of age. Thus it took
me until 1988 to launch my own brand into
the market, the challenges were enormous.
At that time I was contemplating on owning
my own brand of tea, it was considered
sacrilege as the industry was dominated by
foreigners. There was nothing Sri Lankan
about it.
Thus steadily and slowly the business
conducted by foreigners was transferred
to local companies and local companies
established themselves. However, what they
eventually did was supply raw material or
bulk tea, which never offered a future for our
tea industry. In my own experience I have
exported tea in raw material form to most
of the renowned international tea brands
worldwide through brokers/middle men in
the country.
Merrill Fernando addresses his foundation
I managed a competent and successful
business when I supplied bulk tea. We
achieved the status of being the fourth
largest exporter from Sri Lanka, for bulk tea
worldwide during that particular period and I
competed with many multi nationals .
How many years did this trend last?
From 1954 to 1977. It is interesting to note that
after 25 years of trying to launch my own
brand I did approach the government in hope
of them providing assistance concerning
investment and machinery. However,
the questions I was subjected to by the
bureaucracy shattered my hopes.
Did this occur in the 70s. ?
In the early 70s when there existed central
control and a shortage of foreign exchange,
I attempted to request an import license to
purchase two foreign tea bagging machines.
However, I was discovered by a particular
individual who asked me why I was
attempting to waste foreign exchange on
this type of activity when big players such as
Brooke Bond had not requested this.
However, I attempted to explain that
the multi nationals will never consider Sri
Lanka as a base, they will have their own
bases concerning value addition but it was
of no use. When the free market policies
were implemented I took my opportunity to
purchase the two tea bagging machines and
having purchased this I felt it was the correct
thing to do. I was unaware of how to go about
it. What raw material to expect. >
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Merrill Fernando and his sons Dilhan and Malik (left)
The packaging material I had to import from
Japan and if there was something incorrect
about it, it would be approximately four
months before I could rectify it. However,
with two machines, along with a colleague I
established a small tea packing business.
You mentioned previously the beginning of your
fascinating career, could you continue your story?
When I had two tea bagging machines and
not understanding what to do, it seemed
ridiculous to want a printing machine to
print tags and envelopes as well. But as time
progressed I realized that it was one of the
sanest things to do in the tea packaging
industry.
What is the reason for this?
Within our country no one was available
to facilitate the tea packaging industry
for printing tea bags and envelopes as the
process involved a different kind of printing
technique from the usual offset process.
I previously relied on my shipments from
Japan but out-sourcing absorbs time. If a
problem occurs it takes up another three
or four months, which proved to be very
costly. So I set up a printing and packaging
company. I gained my first break after
knocking at many doors.
People still ask the reason for my close links
with Australia, the reason being when I was
supplying bulk tea I established myself as the
second largest supplier of bulk tea to Australia.
And it was in Australia that I got my first break
as a supplier of tea in value added form
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What percentage of the tea market do you possess
in Australia?
We possess 12 percent after ten years of the
market share while the brand leader after
around a century has about 18 percent. That
in itself speaks very highly of Ceylon tea,
needless to state that our brand proved to
be the vehicle to establish Ceylon tea into
the markets worldwide. Once we entered
the markets, according to the market
environment, our success lay in the high
quality of tea. I got my break when the very
large retailer, Coles, responded and visited
my factory. They inspected the factory,
made certain recommendations, sent their
quality control staff, and provided me with
useful knowledge. I had to make certain
adjustments and they gave their first order
to pack their house brand Farmland and to
this day I continue to pack that. This proved
to be my first opening. I offered them high
quality Ceylon tea at a competitive price.
Therefore Ceylon tea was born and launched
in Australia in 1979 or 1980 and that was the
beginning of Dilmah Pure Ceylon tea.
I understand the brand named Dilmah comprises
a combination of the names of your two sons, can
you comment on this?
Dilhan and Malik are the names of my two
sons and I did this in 1974, when I confirmed
that I was going to establish my own brand
name of tea. I later decided to register a
brand name after my two sons were born and
I did so. I decided that I must demonstrate
my dedication for my tea and what more
than naming it after my two sons. That
decision has been excellently received by the
consumers.
On observing your present status globally,
you possess a large business in locations from
Singapore to Australia and Russia? What is your
relative position? I understand in Australia you
hold 12% of the market share?
Australia is close to my heart because it is
where I launched Dilmah tea. It has proven
to be Australia’s fastest growing brand
concerning tea and the Australians have
adopted Dilmah tea as a member of the
expanding family.
I am told that you undertake your own advertising
on television and that people recognize you as a
celebrity?
It is true that I advertise Dilmah; the idea
was first put forth by our advertising agent
in New Zealand who said “You maintain
a quality product, possess an honest face
and consumers want to be identified with
what they eat and drink.” He attempted to
persuade me to relate my story on television,
which I refused because I could not consider
myself a salesman or display my face on
television to sell my tea. Eventually he
convinced me. The person who undertook
this was Daron Curtis, the Managing Director
of Waves Advertising. At present he is with
me shooting some new commercials for
the coming year and that recommendation
brought tremendous integrity to the brand,
for people say, “look that tea belongs to >
September 2007 |  AsianEnterprise |   35
Dilmah Tea | Merrill Fernando
that man and we have faith in his ability”.
There is a responsibility that goes with
this for I cannot under any circumstance
compromise the quality of my tea – because I
give consumers my personal assurance.
How are the other markets you have penetrated?
Can you comment more on this?
I always discuss Australia because I am
directly involved with it. In New Zealand
we began two years after Australia with
17.2% market share which is substantial.
We recognize ourselves as being the second
brand, but the No.1 for Quality which to us,
is more important. The most recent market
we penetrated is Singapore which is strongly
oriented towards multinational brands which
have been there for a long time. I personally
felt that this venture would not be successful
but my son Dilhan was very persistent and
we decided to carry on the launch. We have
a very good partner there and our first six
months have been encouraging. We were
amazed at the reception we have had.
Singapore Airlines wanted Dilmah for the
Business and First Class Lounges, and they
discarded their old product and have adopted
Dilmah, recognizing its quality. It gave me a
tremendous sense of satisfaction, to identify
Ceylon tea as an accepted brand in the First
and Business Class Lounge of Singapore
Airlines. We are hoping to supply Qantas and
already supply Emirates Airline. At present
we are supplying to about 15 or 20 airlines
and we have penetrated the Russian market
in which Dilmah was established as the
second most popular brand up to 1997.
What happened after that time?
Our brand grew immensely popular and we
were shipping over 100 container loads of
tea per month, and that was a tremendous
quantity of tea. The Mafia possessed their
own tactics to deal with successful brands.
They directly approached our distributor
and requested for a share of the business,
36 |   AsianEnterprise | September 2007
which they refused. Later they requested
twelve million dollars and we refused. Two
weeks later they entered the office under the
pretext that they were officials and removed
about eight and a half million dollars worth
of tea from our distributor’s warehouse. This
affected us and our distributor and created
an unfavourable impact on Dilmah. They
dumped the tea in the market at 50% below
our selling price. However, it was a blessing
in disguise although an expensive one, for
everyone who could not afford to purchase
Dilmah could do so now. The next year we
faced another obstacle which was the Rouble
crisis, we took this also with good spirit and
I have been cautious, when undertaking
business, always expecting shortfalls to occur.
We saved, built up our reserves and we were
able to withstand that blow.
You supply to McDonalds which is a huge
challenge, how did that happen?
Yes, we have supplied McDonalds in 21 or 22
countries. In Australia they called for offers
and they decided on us some 13 years ago,
because of the quality of our tea. I am proud
to say this not only because of Dilmah but for
Ceylon tea too. The talawakelle tea gardens and (below left)
McDonalds possess two products which Merrill Fernando at the Foundation Centre
are co-branded. One is Coca Cola, and second
is Dilmah. On every bag of McDonalds tea Brokerage was never in our agenda but I felt
there is a Dilmah logo of which we are proud, that a company like this should be directed
because it is also Ceylon tea. Our relationship from the people who are involved in the
is strong because we meet and exceed company and it is virtually a management
McDonald’s exacting quality standards, and buy – out because the management had
also provide them with a fine cup of tea. They a large stake while we went in purely as
in turn assist us and offer us opportunities investors. However, I recognized this as an
to widen our association with them where opportunity to break the walls that exist
possible. between the plantations, planters, produces,
brokers and exporters. If I undertake
Considering the tea sector as a whole I was reading activities in my own way, discuss these
in the paper that you now have gone into looking with brokers, planters, etc., and suggest we
at the broking sector such as Forbes and Walker as amalgamate and build a successful brand
well. Can you comment on this? together there is tremendous opportunity.
Forbes and Walker is a very old firm and I But as long as we continue to assume we are
was aware they were searching for investors. this, we are that, it will not be the case. The
old values will never change. When I tried to
set up my own value added business, none
supported me - that is only because people
are used to the beaten track.
In the tea industry, I have observed that the
moment someone attempts to bring change
and innovative ideas someone pushes them
back to the original position. I would not
abide by this and I did it my way; you create
many enemies in the sense that they do not
understand your mission, position or what
your intentions are.
Is the reason based on jealousy or competition?
I do not think this has anything to do with
jealousy. The reason I feel is that being in the
tea industry we inherited old customs and
traditions. These proved to be imported at
that stage where one dictated and decided
who is going to undertake what, but today
no longer. When that era passed we had no
replacement but there were many people,
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planters and traders at that time who lacked
substance to maintain their arrogance and
position.
Why have we failed in building other brands?
In the first place we have no mission or vision,
we have solely been training to accommodate
the supply of the raw material market. I was
involved in this too, if I had not traveled
so extensively, met my customers, gained
knowledge I would have continued this trend
of supplying bulk tea or filed for bankruptcy
ten or twelve years ago. We possess job
satisfaction, having this view that if you earn
a profit we do not want to invest further, you
can observe many people in the tea industry
although I am sad to say so who did well
out of tea, never expanded the tea base they
venture into other industries such as, hotels
and various other things because tea had
an old style establishment. It was not seen
as innovative or progressive, and continued
without any excitement providing the bread
and butter to the individuals in the business.
Coffee such as Columbian coffee has had a success
story right down to the retailer for e.g. Starbucks.
Do you see tea moving in that direction too?
Tea is a attempting to move in that direction
too. But I feel that it is unfortunate for the
producers because it is only the middlemen
who are involved in these operations. There
are people owning teashops who intend
to add enormous value to the tea because
tea is comparatively cheap. People do not
take it seriously despite the large amount of
benefits confirmed by researchers who have
stated that the tea is a medicine. It is only
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the health consciousness and the presence of
antioxidants in tea that makes people want
to consume it to maintain sound health.
There is awareness of this specific value of
tea but that is not going to benefit us but
the middlemen, who are the ones who will
ultimately cash in on that. If I can convince
ten other people to join and amalgamate in
order to function as a team, set up their own
brands the tea industry will begin to boom.
It is difficult because individuals do not
realize that it is not envy or jealousy but lack
of understanding. If someone accomplishes
a great feat we are not accustomed to
acknowledge this but rather to discredit
that person stating that this has happened
because of so and so.
Very often companies like yours are built up by
entrepreneurs like you. Does succession develop
into an issue in order to continue the possess
forward, what is your view?
With a great deal of satisfaction I can state that
I have two sons and they are my greatest assets
in life. I planned a brand name after them and
I have confidence they will perform better than
I have done because they possess the vision,
the education and the discipline that I have
instilled in them and they have the talent.
How do you divide the responsibilities?
Malik is an intellectual. However he
undertakes responsibility well, he has proven
to be an excellent manager, and possesses
the ability to handle difficult situations
extremely satisfactorily. Dilhan is an honest
and sincere salesman, he has the ability to
interact and get along with people therefore
Merrill Fernando | Dilmah Tea
he is the Marketing Director and Malik is an
Executive Director. Between the two I possess
an excellent team, they have built their own
teams for marketing and management. I am
proud of their achievements, which I could
never have accomplished because I am too
involved in my work and they are getting
involved in the business although I never
pushed them to it.
I am aware whether it is in our country or
elsewhere, all you can give your children is
to provide a decent education. At the time
when I was building my business, I could not
look beyond the next three years or whether
I will have a business or not. I decided that I
would provide them with a good education
and permit them to follow whatever field they
decide on.
Does this mean you have more time to spend on
relaxation and leisure?
I should because the business is stable and is
performing well. We have diversified and are
exploring new markets that requires years
of my experience to blend in with the vision
of my two sons; they have a great marketing
team to guide and direct. For instance I say
we should go into this market, often we
disagree and come to a conclusion then
attention is focused on the decision. I have
nothing to do with the management of the
company, I am only undertaking marketing
and I am having fun doing graphic work and
designs, I love doing that and I work maybe 16
or 18 hours a day and I enjoy it.
Your website states that you are in the process of
transferring the better part of your wealth or have
already performed this to a foundation?
Yes, I have done so. About a third of my
wealth is for my foundation, the Merrill J.
Fernando Charitable Foundation. This entity
formally commenced operation recently
although has supported various charitable
programmes since 1998.
Within three years of my death all my
wealth will be transferred and my children
progressively will transfer some of their
wealth. I did that because I was brought up
in a middle-class family and I had a lot of
wealthy relatives and friends and I find I have
performed better than some of them even
those who were wealthier than I. I continue
to work hard, even harder in the present day
and age. I have wealth acquired through the
co-operation and the assistance of many other
people who worked with me. I realize and I
strongly believe that we come into this world
with nothing and go with nothing. I have added
to this philosophy that the wealth should return
to those who helped us to acquire it while we
are still around. Although I have confidence
that my children will handle this situation
appropriately I am giving it back before I go in
tribute and thanks to consumers, workers and
others who helped me along the way. We help
children and the elderly or infirm in several
countries where we also sell our tea. l
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