Storm in Sri Lanka’s teacup: A more pragmatic approach is key

Sri Lanka’s top policy administrator, Dr. P.B. Jayasundera, popularly known by the initials of his name PB, is reported to have proclaimed that Sri Lanka should stop altogether the importation of tea from abroad for blending purposes for it would tarnish the reputation which the country has earned for centuries as the best tea producer of the world.

He has made this announcement at a dealers’ conference hosted by Sri Lanka’s top most tea brand owner Dilmah recently in Colombo (available at: http://www.ft.lk/2012/05/10/govt-pledges-to-protect-pure-ceylon-tea/#more-85774).

PB’s announcement is, apparently, an expression of the wish of the Government that it would not hesitate to exercise its veto to put an end to the ongoing debate in the country that Sri Lanka should import tea from other countries, blend it with the country’s best tea and make a value-added tea so that it would not only retain its tea market but also make more foreign exchange earnings.

On one side of the debate are its proponents – Sri Lanka’s Tea Exporters’ Association or TEA – with a proposal for establishing a “tea hub” in Sri Lanka (available at http://www.ft.lk/2012/05/16/hub-is-no-hoodoo-says-tea/) which apparently has earned the sympathies of the country’s tea regulator, Sri Lanka Tea Board.

On the other side are reputed tea exporters who are also members of TEA and so portending a potential split in the association in the future and some of the concerned citizens who consider it so outrageous that in their opinion it would amount to be a loss as grave as the loss of the nation’s sovereignty.

Public protests against importing tea for blending

Obviously, the proposal by TEA runs the risk of being misunderstood by an emotionally driven society and end up in provoking a severe public protest, mainly by small tea holders who number more than 100,000, feel threatened by imports and are scattered in the politically sensitive Kalutara, Galle and Matara Districts.

The protest has already been made by the more organised side of the tea industry, the Planters’ Association, which sees tea imports for blending as a “doom” (available at http://www.ft.lk/2012/05/17/planters-association-says-tea-imports-spell-doom/). It is only a matter of time for this verbal war to become an open war between tea producers and tea marketers. PB, the foresighted policy administrator, having smelled the unpalatable brew being made in the country’s valuable tea cup would have wished to nip it in the bud.

But independent writers like Mohan Mendis, a former tea exporter himself and knowledgeable of the practicalities behind tea marketing, writing under the caption ‘Tea without tears’ to the Daily FT has appealed to everyone to look beyond slogans and come up with the best solution for the country’s tea industry (available at http://www.ft.lk/2012/05/16/tea-without-tears/).

Later in the week, management expert Willie Weerasekera in an article titled ‘Pure Ceylon Tea or tea hub? The billion dollar question’ has emphasised the need for conducting global consumer surveys for marketing tea globally (available at http://www.ft.lk/2012/05/18/pure-ceylon-tea-or-tea-hub-the-billion-dollar-question/).  

Drink Ceylon Tea: The Brain Tonic

This writer recalls a visit to the British Museum in London in mid 1970s. There, a London street of the late 19th century had been reconstructed with its numerous grocery stores, shops, pubs and other salient landmarks that had adorned a city scenery at that time. In one of the grocery stores, there was a prominent bill board on display: ‘Drink Ceylon Tea: The Brain Tonic’. This was how Ceylon Tea had been sold to retail customers by the tea marketers at that time and the tagline Ceylon Tea and its brain rejuvenating property would have appealed to the tea drinkers immensely.

But that was nearly 150 years ago when everybody in the UK and in the rest of the world knew of Ceylon, a British colony in the Indian Ocean. Today, that country called Ceylon is no more in the world atlas even within brackets after its new name Sri Lanka. The writer recalls his difficulty in the mid-1970s in explaining to the British people and also to the foreign students in the UK from where he came: Nobody knew where Sri Lanka was until they were told that its former name was Ceylon.

Similarly, today, one may have the same difficulty in explaining where Ceylon is and it would be incomplete without an explanation that it was the former name of the present Sri Lanka. When it comes to Ceylon Tea, one may even tend to think that Ceylon is a part of Sri Lanka going by the references to other teas like Darjeeling Tea (a part of India), Nilgiri Tea (again a part of India) or Cameroon Tea (a part of Malaysia).

Develop private tea brands to compete in the market

The writer also had the opportunity of delivering the keynote address at the annual general meeting of the Sri Lanka Private Tea Factory Owners’ Association in 2001. Having recalled his experience in the UK, he informed the tea factory owners that it was time for Sri Lanka to build its own tea brands and market its tea globally instead of trying to sell its tea under a common brand called Ceylon Tea. The reasons for this advice? There were many.

Governmental brand promotions are inefficient and ineffective

The brand Ceylon Tea is a public property and like any other public property, there is no incentive for any particular tea exporter to promote that brand name. The owner of that public property, presumably the government of Sri Lanka, has no sufficient resources to promote it globally on the scale which such promotions need to be conducted. Even if it has resources, Governmental promotional activities are inefficient and ineffective in creating the required impact in consumers compared with promotional campaigns launched by global soft drink manufacturers like Pepsi or Coca Cola.

If the Government raises funds to finance such promotional campaigns by taxing the industry, the industry has the right to demand for the best results and impact out of such expenditure. But the industry has no say in the way the campaigns are conducted for it would be in the hands of bureaucrats over whom the industry has no control. This would be an unsatisfactory arrangement where one spends money but has no role in deciding its quality and has to accept the final output whether he likes it or not perhaps with some grudging complaints.

Consumer complaint handling a must in a good brand development  

In modern marketing, to establish brand names, it is necessary to continue with promotional campaigns unceasingly so as to drive the brand name hard into the minds of the prospective consumers. To establish a good brand name, it is essential that the supplier has an effective mechanism to handle consumer complaints and grievances promptly.

But, since sellers are numerous under a common brand name, there is no single agency responsible to handle consumer complaints and redress their grievances. Hence, private brand names are more effective than public brand names. So, advice to the tea industry was that it should develop private brand names like Lipton, Brooke Bond, PG Tips and Twine and so on and promote them with personal funds so that in the long run, the particular marketer will benefit. When the local brands become global brands, the country’s tea industry, whether it is Ceylon Tea or Sri Lanka Tea, will benefit.

Tea being a beverage has several competitors, hot drinks like coffee, soft drinks like Coca Cola and Pepsi and light alcoholic drinks like beer. To push tea up in the market as a major drink, it has to be mindful of the changing consumer preferences and the marketing strategies adopted by its competitors. On both counts, Ceylon Tea has lost.

The old tea culture has given way to ‘instant tea’

Tea was promoted as a family beverage by the British tea marketers in the late 19th century with such marketing slogans as a brain tonic, straight from tea gardens to the teapot etc and giving birth to a new society behavioural culture called the tea culture. Under the latter, the British, European and American high ups, both men and women, in the society met in evenings and used the time for discussing, debating and disagreeing on socio-economic-political issues of the day and also engaging in common gossips over several cups of tea.

They had a plenty of time to kill and therefore the longer it took tea to brew in the pot it was more rewarding for the tea culture. The orthodox black tea which Ceylon and other tea producers had been producing at that time was the ideal product for such a time – consuming societal behaviour.

But after 1960s, the Western nations became time conscious and could not spend so much of time on evening meetings over a cup of tea. The busy nations wanted something done quickly and the result was the introduction of the instant tea to the market. Thus, by 1970s, the consumer preferences in Western countries changed from orthodox black tea to instant tea and there again, it was tea produced through a different manufacturing process called Cut, Tear and Curled or CTC that supplied tea for instant tea.

With instant tea, the messy teapot was replaced by tea bags. Ceylon which had been producing only orthodox black tea lost the Western markets and had to depend on the countries like the Soviet Union and Pakistan and those in the Middle East to sell its tea because they had not moved into instant tea as yet.

But, as revealed in recent consumer preference surveys, even those traditional markets are now moving fast into instant tea portending grave risks for Sri Lanka to market its orthodox tea. The lesson learned:  Unless a food producer adapts himself to the changing consumer preferences, it would be a doom for himself. So, on that count, Ceylon Tea has failed once.

The main competitors are smart marketers

The major competitor for tea and also for coffee and beer is the soft drinks. Hence, the marketing strategies that are being used by such soft drink manufacturers are important for designing the marketing strategies for tea. There, the country of origin as being advocated by many in Sri Lanka does not matter, but the brand name assigned to the product. Worse, such soft drink manufacturers have long term strategies spanning over 10 to 20 years and not just the immediate future.

For instance, as reported in a documentary by the Public Broadcasting Service or PBS of USA, there was a global dealer convention of Coca Cola marketers in New York in 1971 just like the Dilmah Global dealer convention held in Colombo recently. At this convention, the President of Coca Cola is reported to have announced to his audience: “In the next 20 years, the world’s major beverage will be ‘not tea, nor coffee and not even beer, but soft drinks’. Let’s make Coca Cola that soft drink”.

Accordingly, a new marketing campaign to wean the youth, the largest segment in the population pyramid, away from tea, coffee, beer and its rival product Pepsi was launched. Coca Cola was projected to young people as a drink which no any other drink could match. It was the brand name that was established among the patronising youth and not the country of origin. Like the tea culture with grown up adults of the 19th and 20th centuries, there is a Coca Cola culture that is being developed with the youth of the world.

As a result, the new entrants to tea are falling at a rate. Instead, the world’s youth are embracing soft drinks and this trend is observable even in Sri Lanka, the country of fine Ceylon Tea, too. Ask a Sri Lankan youngster how many cups of tea he is drinking a day. Mostly no tea and if he drinks tea, it would be at most two and even then it is with reluctance on the insistence of his parents. So, Ceylon Tea which did not take note of the emerging threat to its global consumer market has failed for a second time.

Should Ceylon Tea fail a third time?

Can Ceylon Tea fail for a third time too? Yes, if it does not amend its ways according to the changing consumer pattern in the world.

Though Sri Lanka had exported tea since 1850s, tea became a dollar billion export industry only in 2007. That again is not due to any impressive growth in the volume but due to the increase in tea prices in the world market which Sri Lanka has to accept as a price taker. Sri Lankan authorities now want to make tea a $ 2 billion export industry by 2016. This is a laudable goal, but it has its own constraints.

Over the 10-year period from 2002 to 2011, the volume of tea exports has roughly increased by one per cent per annum from 294 million kg in 2001 to 323 million kg in 2011. Given the country’s current yield rates and the extent of land under tea cultivation, this is going to be a formidable constraint for the country. Then, over this period, tea prices have increased by roughly 10 per cent annually thereby increasing the export earnings from $ 697 million in 2001 to $ 1491 million in 2011. So, it was not an achievement of the country, but a general tea shortage in the world relative to its demand.

These are the hard numbers given to Sri Lanka and the country has to work within those numbers. At most, the country will be able to export 330 million kg in 2016 and to earn $ 2 billion, tea prices have to go up from the current $ 4.61 a kg to $ 6.06 a kg. This increase in prices is not within Sri Lanka’s control.

Import tea and raise export earnings

If tea prices remain at the current level of $ 4.61 in 2016 too, the export volume has to go up from the current 323 million kg in 2011 to 433 million kg in 2016 to generate an export income of $ 2 billion. That Sri Lanka can do only by importing about 103 million kg, blending it with Sri Lanka tea and exporting as value added tea.

So, there is a hard choice which Sri Lanka has to make in its move toward making tea a $ 2 billion export industry. That is, either increase the volume by importing tea from other countries or wait patiently till the tea prices increase to a level of $ 6 a kg in the market. Even if the tea prices go up to the level required on its own accord, Sri Lanka has to supply teas which the world consumers want to drink and that would mean producing again value-added tea by the country. If Sri Lanka does not do that, others will import valuable Ceylon Tea, blend it with other teas and sell at premium prices, thereby denying the benefit to Sri Lanka.

Hence, all that is needed today is to shed the emotional bonds and have a more pragmatic approach toward tea by taking into account the emerging global trends in beverages.



(W.A. Wijewardena can be reached at [email protected].)