Food & Beverage

Dilmah Tea targets a new generation of tea drinkers amid tight margins

Jessica Wa'u
The outlook for tea
The outlook for tea

Unfavorable weather conditions for tea farming in Sri Lanka are hurting tea production and exports.

According to the Sri Lanka Tea Board, tea crop figures in the first two months of the year fell 20 percent against the same period in 2016. This drop has had an adverse impact on producers like Dilmah Tea that primarily harvest from Ceylon tea plantations in Sri Lanka.

"If you look at margins, it's not a good picture. Because of the drought related shortcoming there's been a big increase in prices, so margins are not something that I can tell you are very healthy at this moment," Dilhan C. Fernando, the director of Dilmah Tea, told CNBC's "Street Signs."

However Fernando, whose first name represents the "Dil" in Dilmah, said he is confident margins will improve, as the company remains focused on serving up high-quality tea to a niche market.

Rolls of labels on the production line at the MJF Holdings' Dilmah Tea headquarters in Peliyagoda, Colombo, Sri Lanka.
Kuni Takahashi | Bloomberg | Getty Images

"There's a new generation of tea drinker entering the tea category. They're looking for single estate teas, they're looking for different terroirs, they're looking for quality in the cup," he said.

Fernando also said he believes the brand's business model can hold up against the competition as it targets a specialty segment, "There's a consumer who wants provenance, who wants authenticity, wants the freshness, which is what my father committed to a long time ago."

As the son of Dilmah Tea founder Merrill J. Fernando, Dilhan C. Fernando said he wants to carry forward the business philosophies of his father.

"My father's philosophy was to make business a matter of human service, and so we have the privilege of having, of sharing our profits in humanitarian projects with differently-abled youth, with women," he said.

"You know, we've suffered lots of issues in Sri Lanka — the conflict ended in 2009, but the social consequences still continue, the environmental consequences. So to be able to contribute in that, is what defines our business," Fernando added. "That is what is going to make this a multi-generational business."

The brand is set to celebrate its 30th anniversary next year.