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Facing tough java rivals, Dunkin' sees green in iced tea

Push also is a part of broader strategy for national growth

Coffee king Dunkin' Donuts is concocting a new kind of brew: iced tea.

Starting Monday, the Canton chain will offer freshly brewed peach and raspberry iced tea at its New England stores, and plans for national roll out are set for early next year. The push is part of Dunkin's broader quest to quench consumer tastes as it expands across the country and faces stiffer competition in the coffee market sources ranging from Starbucks to McDonald's.

"We know that tea is a fast-growing category, and we see it as a natural progression," said Scott Hudler , Dunkin's senior director of brand marketing.

Indeed, iced tea is the new battleground. Since 2001, servings of iced tea at restaurants grew 12.5 percent to 4.5 billion, according to NPD Group, a market research firm in Port Washington, N.Y. Consumers have increasingly turned to tea as an alternative to soft drinks, and more people are drinking the beverage for breakfast. Restaurant analysts say the focus on freshly brewed iced tea should help drive profits, given its low product costs and growing popularity.

"Compared to anything else in the fast-food quick service category, beverages, such as iced teas, are by far the most profitable items," said Stuart Morris , president of QSR Consulting in Coronado, Calif. Restaurants "would love iced tea to be the next coffee."

Over the past 18 months, McDonald's Corp. has aggressively expanded its beverage offerings, serving better coffee -- first in Dunkin's backyard in New England -- and later rolling out iced coffee. More recently, the Golden Arches began serving freshly brewed iced tea and sweet tea in select stores. The McDonald's tea is strong with hints of orange and jasmine, says McDonald's spokeswoman Danya Proud .

Meanwhile, java giant Starbucks Corp., which acquired Tazo tea in 1999, said it has seen a growing demand for tea, and it currently offers three freshly brewed teas, including Black, Zen (a green Chinese tea with lemongrass, lemon verbena, and spearmint), as well as Passion (an herbal caffeine-free tea). "Our customers are increasingly looking to us for quality iced tea," Starbucks spokeswoman Jennifer Guebert said.

Dunkin' began testing its iced teas last summer in Charlotte, N.C., and Portland, Maine. In Charlotte, the company also introduced sweet teas -- a Southern specialty that involves brewing the tea in a batch with sugar. Dunkin' plans next year to offer peach and raspberry versions of its sweet tea to select markets in Nashville, Atlanta, and the Carolinas.

"In the South, if you have an establishment that sells food, you have to sell sweet tea ," Hudler said. "As we expand across the country, there are regional menu differences. Dunkin' is not just a Northeastern brand anymore."

Dunkin' -- the country's top doughnut chain -- has mapped out an aggressive strategy, with plans to at least triple its stores nationwide to 15,000 by 2020. Under new owners, including two of Boston's largest privately equity firms, Dunkin' is moving fast to capture the lucrative coffee market as well as broaden its menu as it enters new cities.

To pull off iced tea, Dunkin', which dabbled in the iced tea business for several years, needed to find a way to make quality tea without a huge investment from franchisees. After a few years of tweaking, Dunkin' found a way to brew using existing coffee equipment.

The company experimented with numerous flavors such as melon and desert pear, but decided to stick with mainstream peach and raspberry. Dunkin' will also serve the tea with a touch not often found at fast-food joints: a freshly cut slice of lemon with each cup. (The company expects to serve more than 10 million lemon wedges this year alone.)

Elizabeth Fuhrman , managing editor of trade publication Beverage Industry, said freshly brewed tea has a health halo around it and appeals to restaurants looking to offer "better-for-you" options at a higher price point. Dunkin' is selling its small iced tea for $1.69 -- just 10 cents less than its small iced coffee. Iced coffee is already a billion-dollar business for Dunkin', and company executives are counting on iced tea to perform similarly over time.

Dunkin' says its expansion into tea territory is a way to attract new customers. "Tea not only appeals to coffee customers, but now we offer something for a non-coffee drinker. It's all about having choices," Hudler said. "It's all about how can this product bring in people to Dunkin' who normally wouldn't be coming in."

Jenn Abelson can be reached at abelson@globe.com.

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