Dilmah Tea may quit Australian supermarkets amid cost dispute

Dilmah Tea is threatening to pull its popular products from the supermarket shelves in Australia amid a bitter price dispute with Coles and Woolworths, Australian media reports said.

Chief Executive Dilhan Fernando said that the major supermarkets are demanding discounts and refusing to pay a premium for their hand-crafted, single-origin Ceylon tea bags.

If the trend continues and an agreement can’t be reached, the Sri Lankan company may refuse to supply Australian grocery chains.

According to Daily Mail Australia, while Dilmah remains the 10th biggest tea brand in the world, it hasn’t made a profit in Australia since 2009 and is seeing its market share dwindle. 
In the past five years, sales in Australia have dropped from US $ 37 million to US $ 29 million.
Fernando said the way the Australian supermarket giants operate is fundamentally an ‘unfair trading system’.  

Dilmah, which is sold in 104 countries across the world, has been a staple in Australian supermarkets since it did its first deal with Coles in 1988. 

The company refuses to dilute its commitment to sustainability and ethical sourcing in order to provide a cheaper price to Australian supermarkets.

Fernando, whose father Merrill J. Fernando started the company, said consumers want quality, single origin (not blended) tea but this is ignored by the supermarkets just looking for higher profits.  Another reason Dilmah is not willing to cut corners is it feels a responsibility to Sri Lankans to support the estates and workers that supply its products, 95 percent of which is exported. This has become even more important due to the tough economic times Sri Lanka has suffered in recent years, with inflation running at 50.6 percent in February.  The tea industry employs around 10 percent of the Sri Lankan workforce, making it crucial to the country’s economic recovery.  Fernando said maintaining quality is critical, especially as Sri Lanka is also at the frontline of climate change.  He believes Dilmah has a ‘responsibility’ to look after the soils and build sustainable farming methods, even if it means having to be removed from the Australian supermarket shelves. A Woolworths spokesperson told Daily Mail Australia that “The comments made do not reflect our engagement with Dilmah, however we are mindful that the business works with a number of retailers in Australia.” “We are yet to receive a cost increase request from Dilmah and would review any future request on its merits. We are working closely with our suppliers to sensitively manage inflationary pressures, while continuing to support them to deliver quality products.”