Setting up support services for the Dilmah brand

(Excerpted from the autobiography of Merrill J. Fernando)

In the development of my brand Dilmah, what has always been in public view is the brand and the publicity it garners, but not the behind-the-scenes toil, which has contributed to its development over the years. Some of our other successful ventures have also been overshadowed by the Dilmah brilliance. A few such ventures merit mention.

IMA Machines

To project Dilmah into the larger marketing chains, it had to be sold in tea bag form. Such production machines were very expensive, but with this in mind I visited a renowned tea bagging machine manufacturer, IMA, of Italy, a world leader in the design and manufacture of automatic machines for processing and packaging various products, ranging from pharmaceuticals and cosmetics to tea and coffee.

I met its founder, Dr. Andrea Romagnoli, and explained my vision. He agreed to sell me two machines at a special price, but also warned me that I may be many years ahead of the right opportunity for the optimum deployment of the machines. I bought two IMA-C21 machines from him and, visiting him a couple of times a year, also became good friends.

In Italy I also had a very reliable bulk tea agent, Giancarlo Beraldi, ably assisted by his dynamic wife, Edy, who displayed an insatiable curiosity about tea. They supplied bulk tea to the largest companies in Italy and, eventually, I became the major supplier of bulk tea from Ceylon to Italy. The Beraldis were a warm and generous couple who entertained me in the best restaurants in Milan, inculcating in me a lasting love for genuine Italian food.

The two IMA machines arrived and were installed in my Peliyagoda packing plant. However, in ominous confirmation of Dr. Romagnoli’s predictions, they were idle for quite some time. I did not lose heart though, despite a very expensive investment being inactive. I secured its agency in Sri Lanka, as well as the agencies for tea bag filter paper and other related components from J. R. Crompton.

I incorporated a separate company, Package Care Ltd., to market these products. All these initiatives were aspects of my vision for making value addition to tea in Sri Lanka, a realistic prospect for other exporters as well, providing them with a one-stop-shop for the purchase of the required finished material. It would save the potential exporter of value-added tea, the serious inconveniences I experienced in sourcing my requirements from Japan, the UK, and other countries.

About two years after my purchase of the machines, at the first IMA distributors’ conference in Milan, I was invited to speak on the first day. I used the opportunity to share with the participants my vision of value addition at origin and the benefits that would accrue to tea growers and workers as a result. Many found it interesting, challenging, and attractive, but none offered hope for its realization. The UK distributor was scornful, calling me a dreamer!

Printcare

Before I installed my first tea bag machines, I was importing tea bags and envelopes from Japan, a very costly and time-consuming exercise, as shipments often took as long as three months to arrive and if there was a common defect in the printing, the re-order took another three months.

I had just moved into my new office at Alston Place, Colpetty and I would personally go to Ranco Printers, also in close proximity, to get my visiting cards and other stationery printed. It was during this period that I met young K. R. Ravindran, whose grandfather, R. A. Nadesan, I already knew.

Ravindran one day visited me at my Gower Street home and in discussion came up with an interesting proposal. He was aware that I had ventured into the production of tea bags. His suggestion was that together we set up a business to produce tea bags and envelopes. Apparently, he had previously approached both Brooke Bond and lies Finlay, but clearly not envisaging the potential, neither had showed any serious interest in such a project.

I recognized the strategic importance of such a venture immediately. Indeed, it had been in my mind as well. Ravi had a very good understanding of the technical aspects of the printing business and, therefore, I promptly agreed to his proposal. Moving on, in 1979, we established a Joint Venture and named it ‘Printcare’. The name appealed to me as I had already incorporated ‘Package Care’ to deal with another aspect of my export operations.

Previously, the world over, tea bags and envelopes were printed using the ‘gravure’ process. We installed the first ‘Flexo’ process machine, an American machine from St. Louis called Mark Andy, to produce the material at the Peliyagoda premises. It was a business risk which soon paid dividends.

That was the beginning of one of the most successful printing and packaging businesses in the region. Together, Printcare and Package Care have made Dilmah completely self-sufficient in printing and packaging material requirements, whilst the two have also become preferred suppliers to the tea value-addition industry.

One major reason for the success of Printcare is that, having recognized in Ravindran a man with the same passion as I for excellence, I let him run that business entirely on his own judgment, with absolutely no interference from me. A small operation which commenced in a little garage-sized space with three people is today a renowned company with over 700 employees, with multiple manufacturing facilities here and in India and is, arguably, the world’s leading provider of tea bag tags and labels, supplying the largest tea companies in the world, including Lipton (initially), Tetley, and Twinings.

In a relatively short time the company acquired a life and an identity of its own and is now listed in the Colombo stock market. It has also expanded into other fields, providing printing solutions for the apparel, beverages, packaging, publishing, and security printing industries. It is also rated as one of the top export brands in the country.

One of the key lessons I learnt in my career, painfully and at considerable personal cost, is the importance of being in complete control of vital resources, men, material, and money. Dependence on others for crucially- important inputs is an ever-present risk, as individuals and institutions not directly in your business are not reliable all the time. An independent supplier of key components can hold the entrepreneur to ransom. In a fast-moving, export-oriented, value-addition operation, the key components must be available at hand for the timely delivery of the product to the customer.

Apart from the fact that I have always been ready to follow my instinct, if I perceive merit in an investment opportunity, I have never been hesitant about backing myself. I had to set in place the infrastructure that was essential for the business success of Dilmah. I have been very fortunate much of the time but, as I say repeatedly, in my success I also sense the hand of God.

In this writing I have described, in detail, the multinationals’ approach to business and the intimidatory strategies and tactics they unapologetically implement in the face of real or perceived threats to their interests. My connection with Printcare offers another very illustrative example.

As mentioned, Printcare was, for many years, a supplier to Lipton. In fact, Lipton encouraged and assisted Printcare to diversify its product portfolio, fostering a mutually-beneficial business relationship which lasted for many years; that is, till the intervention of the Brussels-based Paul Eavers, Unilever Global Supply Manager, Packaging, In May 2000 he advised Printcare that Unilever was concerned about my relationship with Printcare and, therefore, it had been decided to terminate the business with a supplier with links to a competitor.

The numerous appeals and counter arguments to this decision offered by Printcare were of no avail. In the course of the next few months Lipton withdrew from all business dealings with Printcare, causing considerable loss to the latter as it had made substantial investments to cater to the Lipton business, which were, quite naturally, on the assumption of a long-term relationship. Given the volume of its business with Lipton, it took Princare quite some time and effort to restore volumes and income to previous levels, without the Lipton contribution.

Timber concepts

From the very inception of the tea industry and up to the late ’80s, the extensive use of timber has been an adverse undesirable feature of its operations. Millions of trees would have been felled in order to make all the crates in which tea used to be packed. The switch to paper sacks made a difference in that recycling became possible and the use of timber has decreased.

However, wooden boxes are still used in packing and dispatching special types of tea, particularly to the Middle East, where fancy and elaborate presentations, carrying tea from one to five kg, are still much sought after. It is a small, niche industry but with much potential, which I decided to move into one day.

I purchased the wood working machinery on a visit to Taiwan and waited for the right operations chief in a competitive woodworking business. I told him to join me when he decided that he needed to quit his present job and, some months later, he met me again. I was prepared to let him invest part of his savings and to set him up in the business, but both Dilhan and Himendra, my Deputy Chairman, talked me out of it.

Subsequently, we set up a business in a large warehouse built for me in Hendala, by R&T Constructions and called it Timber Concepts and got it going. Today it is a thriving business with regular export orders. I persuaded Sirimevan, the Manager, to invest in the company at Rs. 10 per share up to 15% and over that at Rs. 25 per share. I have found that often, even those closest to me, do not share my confidence in new ventures.

Ceylon Tea Services

In 1982, two investment consultants prevailed on me to take Ceylon Tea Services Ltd. public. At that time the business was progressing well and there was no urgent need to inject funds from outside. Initially I was reluctant but Chandi Chanmugam, then Secretary to the Treasury, with whom I discussed the matter sometime in 1983, was very encouraging and offered me special incentives to do so. His point was that it would be a unique opportunity for me, as Sri Lanka, though being a major tea producer, did not have a single publicly-listed tea company.

Chanmugam was a man I had much respect for and his arguments persuaded me to go ahead. I offered 20% of the company at Rs. 10 per share and, to my surprise and pleasure, within seven hours, the offer was fully subscribed. The bankers to the issue was Overseas Trust Bank, of which the Managing Director, Yeshwant Desai, was a close family friend. I purchased some of the shares myself.

For anybody who subscribed to that share issue, it would have been a gilt-edged investment, as the current value of a share is Rs. 550. That is apart from the annual earnings per share in the way of dividends and bonus shares as well.