Taco Bell is bringing dollar menus back

Value menus are once again in the spotlight. Restaurant sales have slumped as cost-conscious customers increasingly eat at home and seek deals on food when they do go out. Image: Business Insider

More than three years after McDonald's killed its popular dollar menu, Taco Bell is doubling down on its selection of menu items that cost just a buck.

Also read, Slumping fast food sales in US, Canada extend to Burger King.

With the December debut of the $1 Double Stacked Taco and its Feast for $1 All Day campaign in October, the fast-food chain is putting its $1 menu items front and center as the restaurant industry faces slumping sales.

"We have not walked away from the dollar-menu price point when others have," Taco Bell's chief marketing officer, Marisa Thalberg, told Business Insider.

In 2013, McDonald's replaced its iconic Dollar Menu with the Dollar Menu and More, as it became more difficult to sell items for just $1 and still turn a profit. It was a switch that caused problems for the chain. In 2015, CEO Steve Easterbrook said McDonald's had not replaced the menu "with significant-enough value in the eyes of consumers."

McDonald's and other fast-food chains instead turned to bundled deals such as the McPick 2, the Wendy's "four for $4" promotion, and the Taco Bell $5 Cravings deal. These deals all drove sales in the fast-food industry in 2016 by offering customers perceived value without the thin or nonexistent profit margins that made McDonald's franchisees hate the Dollar Menu.

Now value menus are once again in the spotlight. Restaurant sales have slumped as cost-conscious customers increasingly eat at home and seek deals on food when they do go out. Some analysts have concerns that a restaurant recession is looming.

Taco Bell can build a dollar menu (or a Feast for $1 menu) while other chains struggle to do so for three reasons: its ability to churn out new products, its tendency to introduce bizarre menu items, and its multipronged approach to value.

While McDonald's was forced to sell classic Dollar Menu items at just $1 despite rising food costs and inflation, much of Taco Bell's $1 menu is made up of new and limited-time items. Thalberg said much of the chain's new product development is centered on value, calling the chain "the fast-fashion of food."

Fast-fashion retailers like H&M sell clothing based on trends ripped from the runway, with the understanding that prices need to be low to win over customers. In the same way, Taco Bell's $1 menu items are created with the über-low price point in mind.

The fast-fashion comparison also applies to Taco Bell's willingness to chase bizarre trends, which allows the chain to use $1 menu items as a way to get customers in the door.

Wacky options like Double Stacked Tacos — a hard taco within a soft taco, bonded together with melted cheese — and Crispy Chicken Chips attract curious customers in a way that dollar-menu classics often fail to do. Sales of Double Stacked Tacos are already beating company expectations, Thalberg said.

At the same time, Taco Bell doesn't exclusively rely on $1 menu items to attract bargain shoppers. The $5 Craving Deals and other bundled deals will also be crucial to the chain's value game plan in 2017, Thalberg said.

SOURCE Kate Taylor, Business Insider