McDonald's new 'dollar' menu to intensify fast-food price war in 2018

McDonald's Corp said on Monday it will introduce new menus with US$1, US$2 and US$3 items in early January as restaurants battle to win US customers who have come to expect deals on fast food.

The move from McDonald's comes amid an intensifying price war with rivals ranging from Yum Brands Inc's Taco Bell to Dunkin' Brands Group Inc.

McDonald's dropped its popular "Dollar Menu" in 2013 after franchisees groused that selling items like a double cheeseburger for $1 cut into profits. The replacement "Dollar Menu & More" had higher prices, but failed to draw more customers despite heavy marketing.

The new dollar menus, set to debut on Jan. 4, include any size soft drinks and cheeseburgers for US$1, small McCafe drinks and bacon McDoubles for US$2 and Happy Meals and triple cheeseburgers for US$3, McDonald's said.

They will supplement McDonald's current value offers such as McPick 2 where customers can pick two items from a list for US$5 - including Big Macs, fish filets and 10-piece chicken nuggets.

All of the value menus are designed to protect franchisee margins, the company said.

"You always have to have value as part of the equation," Chris Kempczinski, president of McDonald's USA, said in an interview.

McDonald's executives in October said almost all of its US operators support its ongoing turnaround plan that includes the new value menus.

McDonald's recent US recovery has been driven largely by its value offers, said Bob Goldin, partner and co-founder of food industry strategy firm Pentallect Inc.

"They are really killing it with dollar beverages and the McPick 2," said Mr Goldin, who added that value remains a key driver of traffic to fast-food restaurants - even as the economy improves and diners have more disposable income.

Elsewhere, Taco Bell has roughly 20 items on its rotating US$1 value menu. Subway, which made a huge splash a few years ago with its "US$5 foot-long" special, is now offering a variety of six-inch sandwiches for US$2.99 each.

Dunkin' Donuts also is brewing up more value offers after franchisees warmed to the idea of using deals in their fight to win breakfast.

The strategy is not without risks, said Mr Goldin, who noted that rising food and labor costs could squeeze franchisees who bear the brunt of such cost increases.

"They are really stuck in a value trap," Mr Goldin said. "There is going to be tremendous pressure to raise prices."

REUTERS