Re-energizing Tea

Tea Report

SRI LANKA

A keynote speech at the Annual General Meeting of Sri Lanka’s Tea Exporter Association (Aug. 31) summarizes the status of the tea industry and the urgent need to rebuild, restructure, and reposition it.

The speech was given by a senior executive in the garment industry, Nithan Sivagananthan. He began by noting the strength of the Ceylon tea brand as globally recognized as premium. He then politely listed how that premium is being eroded. Despite its high reputation, Sri Lanka is losing momentum in world markets. Overall global tea consumption has grown by 4.5% annually for a decade. Sri Lanka’s production is almost exactly the same in volume as 15 years ago.

China has increased its supply by 6.5% annually since the 1960s. SL’s growth rate is 0.8%. Its market share has fallen from 20% to 6% over the past 50 years. Its exports are concentrated in a few often-volatile sectors: MENA (50%) and Russia (15%) dominate. Cheaper competitors are taking away sales. The UK imports just 3% of its tea from SL and 47% from Kenya. It loses value adding opportunities because its main shipments are bulk leaf (80% of exports.) That loses the premium and brand advantage.

Many of the solutions Sivagananthan are the commonsense of the innovators. One of the positives of the commonsense is that it works and is illustrated by the flood of innovators and entrepreneurs transforming India’s and other Asian tea markets, attracting millennials globally to new combinations of tea and cuisine, new flavors and products in settings of new ambiance and streamlining the bush-to-cup logistics chain.

• Know the end consumer and tailor your offers: Sivagananthan points to the vital need to understand millennials and younger groups in their own market: their preferences, routines, values, trends etc. The invigoration of the Indian and China markets and the belated renovation of the eroding UK core has rested on offering variety and a wide range of tea choices. Sri Lanka’s industry hasn’t got close to its customer base. It offers a traditional product through traditional marketing. He recommends recruiting and contracting talent that builds teams focused on customer insight and customer-centric innovation.

• Prioritize professionals: “The tea industry is not attractive to graduates and professionals who are drawn to industries like banking, IT, hospitality.” The best incentive is commitment to growth. India contrasts with Sri Lanka here. Many of its fastest growing and most innovative new tea firms are headed by engineers, software experts and graduates from elite universities.

• Rationalize, globalize, and integrate the supply chain: This includes regaining control of blending in Africa and the Middle East, contracting for tea trade zones and bonded hubs within free trade zones, and extending design, packaging, marketing downstream nearer the consumer.

“We need to move on from the belief that all investment should be within Sri Lanka to bring in revenue,” said Sivagananthan. Automate the tea auction system to link it to e-commerce systems, encourage a wider range of buyers and greatly accelerate digitization.

Obviously, these are all complex moves to make. But they seem essential and urgent. Can Sri Lanka catch up to the global pacesetters?