Dilmah Tea: Stakeholder Analysis and Marketing Mix

Customer Segments and Global Tea Market Overview

There are two ways of looking at Dilmah's customers. The buyers to whom Dilmah sells are the supermarkets and wholesalers that carry the tea. The other customer group is the end user. Tea is a mass market product consumed by a broad swath of the population, and to the extent that there is a definable "typical" demographic for tea consumption, this will vary by market. Initially, the company experienced difficulty in attracting interest from supermarket chains, which would then have had to utilize a push strategy to convince consumers to buy the tea. Over time, however, Dilmah was able to build its brand, making it more attractive to both supermarkets and consumers.

The global hot beverages market is worth $69.77 billion, and the two major segments — coffee and tea — are both growing (PR Web, 2011). Growing demand combined with constrained supply means that current global production of around 3.8 million metric tons falls 140–150 metric kilograms short of demand, and the gap is widening annually (PFN, 2010). The largest producers are China, India, Kenya, and Sri Lanka, which together account for 72% of global production. Nations like China, India, and Japan are heavy consumers, but all produce domestically. The largest markets, therefore, are in high-consumption nations without domestic production. These include Morocco for green tea and Russia, the United Kingdom, the United States, Pakistan, and Japan for black tea. Sri Lanka is generally a major supplier for the Russian market, where the average retail price is $18–20 per kilogram and consumers have demonstrated low price elasticity of demand (PFN, 2010).

Key Geographic Markets: Russia and Australia

Geographic product segments are important for Dilmah because the characteristics of tea drinkers can vary significantly within a country, while country-level characteristics determine key variables such as price elasticity, consumption patterns, and routes to market.

Russia is one of Dilmah's major customer segments. The nation has increased wealth from oil and gas investments, fueling modernization across much of the Russian economy. Tea is an everyday beverage for Russians, with 95% of the population believed to consume it (Orimi, 2002). Despite the incursion of Western-style coffee shops in Moscow and St. Petersburg, tea remains the hot beverage of choice for Russians by a wide margin. Retail in Russia consists of a mix of Western-style supermarkets, especially in big cities, along with small shops and kiosks, all of which typically sell tea. There is also a substantial institutional market in businesses, hotels, universities, hospitals, and the national railway system. Russians consume 1.26 kg of tea per capita — roughly twice Indian levels and just over half of British levels (FAO, 2008). Russia is the largest importer of black tea in the world, and its market is worth over $3 billion, growing at 12% by retail value on just 2% growth by volume (PRN, 2010). There is a growing trend toward Sri Lankan teas in particular. By 2002, Sri Lanka held a 39% share of the Russian market, overtaking India's 33% (Orimi, 2002).

The Australian market is another strong market for Dilmah. Australians have adopted British tea-drinking traditions, but also consume a large amount of coffee, especially in the major cities where most Australians live. The route to market typically goes through supermarkets. Australia is where Dilmah first established itself, and the company remains affected by movements in the Australian dollar, highlighting the country's ongoing importance to the business (Bajaj, 2010). There is also a strong institutional market in Australia. The Australian market was worth $437 million in 2008, growing 8.2% to $473 million by 2013. Per capita consumption stands at 0.8 kg, and tea faces strong competition from a robust coffee culture that inhibits further growth. Lipton is the number one tea brand in Australia, with Dilmah in second place and Tetley third (Datamonitor, 2010).

Dilmah tea has adopted premium positioning in the global packaged tea market (Ellis, 2007), making it more appealing in markets with enthusiastic tea-drinking cultures, where consumers better understand the quality component of Dilmah's value proposition. As a premium producer, Dilmah also requires markets that can afford premium tea. While this is not always the case in the Indian subcontinent, it holds true in Australia and in Russia, a country whose per capita GDP has risen significantly in recent years and where demand shows low price elasticity (PFN, 2010). In both countries, tea drinkers are brand conscious, with Lipton, Tetley, and Dilmah dominating the Australian market. Lipton is the market leader in Russia, with Dilmah in second place (CoffeeTea.info, 2010). Russians are notably brand loyal, and a frequently cited reason for switching brands is the desire to afford a better one — a dynamic that benefits premium players like Dilmah (Orimi, 2002).

Competitor Analysis

In each of these key markets, Dilmah trails Lipton, a brand owned by Unilever. Unilever also owns other tea brands, most notably Beseda and Brooke Bond. Unilever's strengths include strong brand equity across its tea portfolio and considerable buying power. As a diversified consumer products company, Unilever enjoys superior market access, since virtually all retailers will want to carry Unilever products. The company has few weaknesses, though Lipton is generally considered a lower-quality tea compared to Dilmah. Another weakness is that in smaller markets, Unilever representatives sell multiple product lines and may therefore devote less attention to the tea business. Both the Lipton brand and Unilever as a whole are considerably larger than Dilmah.

Another major competitor is Ahmad Tea, an English brand that sells worldwide and targets the same premium segment as Dilmah. Its strengths include a strong brand name and high-quality teas. Among its weaknesses is that the company is less established, having been founded in 1986, and it entered many markets after Dilmah. Ahmad also lacks tie-ins with other consumer products, placing it at a disadvantage in distribution. Ahmad is roughly comparable in size to Dilmah — perhaps slightly smaller — but benefits from a stronger domestic market base.