Merrill J. Fernando: The underdog entrepreneur who challenged the multinationals
When Sri Lanka’s top tea brand, Dilmah marked 25 years in the global market, it celebrated the anniversary in style with 150 invitees at the Sydney Opera House!
“I don’t think any Sri Lankan has had a celebration at this prestigious venue; We did,” said a proud and enthusiastic Merrill J. Fernando, widely considered Sri Lanka’s ambassador of tea and the flag bearer of ‘Pure (unblended) Ceylon Tea’ for more than two decades overseas.
Inviting the Business Times to his sprawling residence on Buthgamuwa road at Rajagiriya, Mr. Fernando tucked into an everyday Sri Lankan meal of stringhoppers, eggs, sambol, fish and potato curry with his fingers while going down memory lane to share the story of Dilmah and his success as an entrepreneur.
The 83 year-old iconic tea businessman whose face has been on millions of Dilmah tea packets over the years, never in his wildest dreams imagined that boyhood visits to tea estates owned by families of school mates would transform him into an innovative tea producer,
Speaking at the Sydney Opera House
Despite his age he remembers almost every minute detail of his life since starting off as a trainee tea taster in 1950. Mr. Fernando is now on the path to sharing his wealth and hopes that other wealthy Sri Lankans would also do so.
“We enter this world with nothing and we exit this world with nothing. The wealth that some of us acquire is with the help of many others. Let’s share some of that wealth in making others happy,” he said, requesting his domestic aide to help his guests with a second helping of the tasty Sri Lankan breakfast.
In a near 2-hour conversation, Mr. Fernando spoke about his beginnings, the ups and downs, the battle as an underdog against multinational brands, jealousy in the industry and the firm belief that Sri Lanka must pursue the ‘Pure Ceylon Tea” option instead of mass blended product:
Excerpts:
Beginnings
The Dilmah founder came from Palathsena village, Negombo from a middle class home with outstanding values. His career and conduct was based on these values taught by his parents. After schooling at Maris Stella, Negombo and St Joseph’s Colombo, he wanted to become a lawyer but grabbed an opportunity to train as a tea taster in 1950 at Darley Butler and Co.
At the time, Tea Commissioner P. Saravanamuttu wanted British firms to train Sri Lankans in tea tasting but they didn’t welcome the idea except Darley Butler. After moving to Health and Co and then working as a merchandiser at Standard Oil Co. he moved to A.F. Jones run by a father and two sons. After three months at Jones, Mr Fernando got his first exposure overseas, moving to London’s Mincing Lane to work with Jones’ principals there where he was exposed to blending, packaging and branding and marketing branded tea.
“The mixing of tea (blending) worried me at the time. Ceylon Tea at the time had 30-40 per cent of non-Ceylon origin tea,” he recalled, adding “it occurred to me that eventually foreign packers would drop Ceylon Tea altogether or use just a little bit”.
This concerned the young tea executive and he began having visions of his own brand tea. “I said to myself I’ll give the consumer the best tea on earth. If I succeeded I would give the tea producers and the workers also a better deal,” he said, chatting away at breakfast.
Returning to then Ceylon, he worked for A.F. Jones until 1962 but Sirima Bandaranaike’s socialist policies saw some of the British selling out.
With the help of two other investors, Mr. Fernando bought the company which continued to do well. Then during a dispute with one of the shareholders at a board meeting he walked out. “I was someone who brooked no nonsense. I refused to be tossed and turned around,” he said recalling the dispute. Humble and simple in many ways Mr. Fernando would however not turn away from an objective or goal.
Jafferjees
For six months he was at a loss, praying for direction. There were many offers to start a business or join others and even offers from overseas. A loyal friend, Jafferjee told him to set up ‘my own company’ in his premises and Ceylon Tea Exports was formed and old customers came to him.
With his sons Dilhan and Malik.
Jafferjees’ then had a strike which also drew workers from his company. He moved out and formed Merril J Fernando still trading in bulk tea but the 1954 vision of ‘having my own brand’ continued to haunt him.
The new company had 18 devoted employees who worked late into the night. As the business grew, he recalled the advice of his mother of ‘sharing’. “There was not much poverty at the time and when mother got chocolates, cake or something… she shared it with the neighbours,” he remembered.
The company provided uniforms, text books, writing books and pens and shoes to families of workers. (Today Dilmah has 1,400 workers in Colombo who, along with estate workers, are given the same benefits in addition to scholarships).
“I believe that all what we earn should not go into our pockets but some part given to the wider community,” he said. A sizable part of the company profits go to the MJF charity foundation.
Commoditisation and the big squeeze
Tea and coffee trade were in the hands of small, medium and big family companies. They ran businesses on quality tea and never tried to discount to compete. The tea auction fetched good prices in the beginning of the 1970s.
Then the bigger players started acquiring all these smaller companies. Many of Mr. Fernando’s colleagues buckled under pressure and sold out after being offered a sale price (of the company) that was three times their turnover. The multinational culture crept in and the big firms got control of the trade and the supply end.
“The multinational strategy was to sell tea not Ceylon Tea,” he recalled.
From selling ‘Pure Ceylon Tea’, the multinationals slowly dropped the word ‘pure’ in Ceylon Tea, transformed it to ‘Ceylon’ blend, and then a ‘Ceylon’ type tea.
Old established family companies here were selling ‘Pure Ceylon Tea’ at US$5 per kg but when multinationals sold (blended) tea at $3 per kg, the local firms collapsed.
1970s, nationalisation and disaster
Land reform policies in the 1970s, saw Mr. Fernando part with a slice of his Melton Estate in the Lindula valley. About to lose his fleet of 6-7 lorries in the nationalization fervor, the Dilmah founder appealed to then Minister Maithripala Senanayake and got the order reversed.
“But I lost heart in the business and sold (Merril J. Fernando and Co) to Cave and Co and opted to retire from business. I took a world tour to see my friends and buyers, particularly distributors in New Zealand and Australia,” he said.
In one of the most depressing events in his career, back home Mr. Fernando met with a serious motor accident and was hospitalised. The car was a total wreck. ‘Selvanathan, father of Hari and Mano (who own Sri Krishna Corp and Carsons) came to the hospital and told me, ‘Merrill, it’s a miracle you are alive. Therefore when I get well you must offer your life to the Lord and work for the Lord’.”
The Russian ambassador who also visited him in hospital urged him to return to business, offering Russian orders.
New businesses and jealousy
Mr. Fernando launched MJF Exports and at the time recalled how the chairman of Harrison and Crossfield asked him why he had sold his name to others. “Pay anything and get your (trade) name back,” he was advised.
Within a year after that query, two banks issued public notices to sell the properties of the former Merrill J. Fernando and Co for non-payment of loans.
“This was the greatest humiliation of my career (though I was not responsible),” he said.
At the same time, a rival businessman had sent copies of these notices to all Mr. Fernando’s distributors. “One of my friends told me that he was at a dinner hosted by this businessman for a foreign buyer. When the foreign buyer said he wanted to meet Mr. Fernando, this gentleman (the host) showed one of these notices and said; ‘Read this and then go and see him’,” the Dilmah founder observed, saying that at the time “I suffered a lot.’
In 1974 he registered the brand Dilmah (made up of the names of his sons –Dilhan and Malik) and in 1988 decided to launch the brand.
At the time Australia and New Zealand were MJF’s strongest markets in bulk tea with the links with Mr. Fernando going back to the 1960s.
Colonialism and slavery
The tradition then (1950s) was for tea producing countries to sell the raw material. As a colony locals were trained to be suppliers and workers by the British Empire wherever it could get the benefit of cheap labour.
While teas from Ceylon were sold at $1 per kg, the multinationals sold it at $50-60 per kg by blending, packing and branding.
“I wanted to reverse this process and add value in my country,” he said not realising that by doing so he was making a significant change in the colonial strategy.
When Dilmah tea was launched by the Fernando family it was an ethically produced tea in the world, long before corporate social responsibility became a buzz work.
In Australia he was told that he had attacked the core of the colonial culture and trade. “What do you mean, I asked? The colonial culture was to get us to produce tea to make others rich. If we didn’t do this, 50 years ago there won’t be a rich society or slavery. We made them rich and they made us poor,” he said.
Dilmah via Merrill sold what it called the finest tea on earth of a single origin. There was no mix, no blending. “You cannot find a better and honest product than Dilmah in any part of the world,” Mr. Fernando claims.
Russian market
By the 1980s, Dilmah had a monopoly of the Russian tea trade and this cash cow provided the company with the investment to launch in Australia, big time.
Every single home had Dilmah tea, whose popularity extended to Ukraine and Poland. At this point the counterfeiting of Dilmah tea began.
“We got complaints that packs were identical to Dilmah. I opened one of these packs and was horrified at the contents. I was very angry,” he said, noting that at this point he wrote a ‘story’ (of Dilmah) and put it on the pack. Subsequently his picture was added to the story but that too was copied.
The Russian market was a huge bonus for the company. “This was absolute gold in Russia. I made the best money in my life in Russia,” he recalled.
Merrill’s face on the pack became a good marketing strategy. It conveyed a key point: an individual was taking responsibility for the product.
While it was an interesting phase in his life, it was a sad story for Sri Lanka. “I urged others and I repeatedly told local traders not to pack other Russian brands with Ceylon Tea here. When that happens, they will not only sell their brands but use all our resources,” he said recalling how Russian brands eventually reduced the quantum of Ceylon Tea, opting for more other origin, cheaper teas.
Proposals to add value
In 1981/1982, Mr. Fernando made a proposal to the Tea Commissioner to develop a value added brand. This was accepted and incentives provided to companies interested in starting a brand. “Anyone could have a taken advantage of these incentives and turn out a value added product instead of selling bulk tea. But no one opted to do so apart from my company.”
In 1982, Mr. Fernando incorporated Ceylon Tea Services as a listed company
The company spends $12 to $14 million a year to promote Dilmah ‘Pure Ceylon Tea. “By doing so we are actually promoting Pure Ceylon Tea (as a brand). Consumers believe in Ceylon Tea and trust Ceylon Tea. They will pay premium prices for premium tea,” he said.
Mr. Fernando says Dilmah is one of the priciest single origin teas in the world. “Our philosophy is also to sell the finest tea on earth. People judge quality also by the price,” he said.
Sharing and caring
The Dilmah (MJF) foundation work centres around the lessons learnt from his mother of caring and sharing.
With the business much bigger now than with 18 workers (at the inception), the returns are greater and there are more generous contributions to the poor, the disabled and any charitable cause like conservation.
“I have a great asset in my younger son Dilhan who like me ‘cares and shares’. All companies in the group now contribute 10 per cent of the profits before tax to the MJF Foundation,” he said, whose elder son, Malik is responsible for all operations in the company.
The foundation has spent $2.5 million on its state-of-the art centre for disabled children including those with autism at Moratuwa so far with an equal amount yet to be spent by next year to complete the project.
He has a lot of praise for Rehana Wettasinghe, who manages the centre, saying she looks after the children like their ‘real mother’. “She loves her job and we love her for what she is doing. This centre is doing yeoman service to the disabled. It is the best equipped centre of its kind in the country,” he added.
Fostering entrepreneurship
The company has several projects where it promotes entrepreneurship in many parts of the country under the Small Entrepreneurship Programme (SEP). One such project is in Amparai involving the growing of ‘pani dodang’ by many families. The company has provided equipments to squeeze the juice, freeze it and transport it by train to Colombo to be served in 5-star hotels, as fresh juice.
“During the Tsunami, people lost everything including families. The easiest thing was to give food and say nice things but we didn’t do that. We selected people who had skills and had lost their small business. We helped them to re-establish the business and provided the tools. Restoring their dignity, we felt, was very important,” he said.
Growing the business
Explaining the entry into the food business, Mr. Fernando says Dilmah has contracts to supply tea to all Shangri-La hotels in the world, Hilton hotels in Asia Pacific and Emirates lounges all over the world and on their flights.
The company also provides tea on board Australian national carrier Qantas, Air New Zealand and India’ Jet Airways.
“There is 75 per cent chance that in any airline you travel you’ll find Dilmah tea and a 75 per cent chance that any first class hotel you stay in Asia Pacific region would have see a Dilmah tea pack,” he said.
Future
Asked if there was anything he could have done better in nearly half a century of business, Mr. Fernando, pauses eating for a while, reflects and says: “I have achieved much more than I thought. I never dreamt that I would reach this stage in life. The Dilmah story fascinates me so much that when I look back I cannot account for my success. I am not over religious but I owe by success to God and make no bones about it.”
| “Merrill’s 25 year journey with Dilmah tea”
The Business Times Desk received the following letter from a reader after publishing a picture last week of Merrill J. Fernando. The letter is published with response from Dilmah: Please note that the tea export statistics show that Dilmah has in fact lost market share over the last five years. It is also important to note that Dilmah exports less than 2 per cent of Sri Lanka’s tea production. I am at a loss to fathom how you claim that Dilmah is a globally acclaimed brand or a success story. On the contrary I would put it as a dying brand or in the best case scenario one that is just surviving. N. Gajendran Response from Dilmah: Measuring export performance by volume was relevant at the time Sri Lanka maintained its emphasis on exporting tea in bulk. The entire purpose of branding is to focus instead on value addition and less on the weight of tea that is exported. A container of bulk tea would carry on average 10 MT whilst in tea-bags its half that weight or less. By volume, our exports are in decline since we see no benefit in the export of tea in bulk and are therefore not developing that aspect of our business. Equally consumers in virtually all territories are moving away from packets to tea-bags where there is logically a similar reduction in weight with the same or more cups consumed. Importantly the average FOB in the case of Dilmah is on average three times higher than the national average. That is the benefit of branding since it is the only sustainable solution to the issues that our tea industry faces currently and a strategic response to labour wages, relatively higher cost of production etc. As for a brand that is ‘just surviving’ – there are more than a few indications to the contrary with Dilmah maintaining its #1 position in New Zealand and #3 in Australia – two major tea consuming markets, in spite of the global financial crisis and the relentless price pressure . If Mr. Gajendran were to travel around Europe and Asia he may also see Dilmah’s presence in premium hotels, airlines and upscale retail which does qualify the newspaper’s reference to the brand as a success. |
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