Drink Up

Volume 8 Letter 8

The hot drinks industry is a $70 billion global market place and over the last decade the coffee market has led a huge global expansion. The big loser in this category has been the tea industry which has struggled to add value to their “brewed cup of goodness”. Over a billion cups of tea are consumed each day but unlike coffee, tea hasn’t really evolved leaving it at the low end of the market with very thin margins. One company from an unlikely part of the world is determined to change all that.

The Dilmah Group, based in war ravaged Sri Lanka, has torn a page from the wine industry’s cook book positioning itself in the market place as a “fine vintage tea”. Similar to the wine industry they begin with the soil, understanding that the same tea bush grown in two different types of soil will produce very different tasting tea. Unlike most tea, which is blended with leaves from various countries, Dilmah tea is a single vintage advertised to deliver enhanced health benefits and natural goodness. Dried and elegantly packaged, the teas are presented as the freshest and purest in the world.

Getting fresh tea to market from a war torn country presents huge supply chain headaches. Dilmah presents their tea as “Tea from Ceylon” (the former name of Sri Lanka) to distance themselves from any thoughts of the conflict in the country. But just saying they are from Ceylon doesn’t change the reality that Dilmah’s tea plantations are located in the middle of a war zone. To better control the supply chain Dilmah is fully vertically integrated; producing, packaging and marketing their own products.

Dilmah is currently starting a foray into T-Bars – high end outlets where the trendy set can come and sip a cup. They’ve targeted the emerging economies of UAE, Poland, Belarus etc. – areas where the traditional tea players like Twinings and Tetley do not have a strong presence. Dilmah opened their first T-Bar outlet in San Diego last fall and have plans to open another 200 T-Bars by 2015.

Growing a hot beverage company from a war torn country presents some unique problems. What lessons can we learn from Dilmah?

  • Control all aspects of the supply chain that are critical to success – in Dilmah’s situation operating in a war torn country means they need to be vertically integrated
  • Always consider your company and product positioning in any decision you make – using ‘Ceylon’ rather than ‘Sri Lanka’ tea to perceptually add distance from the conflict
  • Even in mature markets (the tea market is 5000 years old) there are always opportunities to add value
  • Test market (if possible) your strategy in markets where your competitor doesn’t dominate – Dilmah opened T-Bars in emerging markets before going into traditional tea markets.

Dilmah is showing us how to add value to a mature market by converting fresh tea leaves to a packaged product ready for sale in less than 24 hours. Sit down with a hot cuppa and find your added value.

For the full story see Fortune July 2007 Vintage Ceylon by Eric Ellis

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