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Taco Bell's Dollar Cravings Menu Fuels Fast-Food Pricing War

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At a time when higher costs are denting the profitability of most fast food chains, Taco Bell — the Mexican food chain of Yum! Brands, Inc. (YUM - Free Report) — launched its Dollar Menu, according to media reports. The Dollar Cravings menu includes 11 items like mini chicken, beef quesadillas, cinnamon twists and spicy potato soft taco with a price tag of $1.

In fact, the Dollar Menu includes many items from Taco Bell’s low-cost Why Pay More! line-up, including cinnamon twists and cheese roll-ups. Taco Bell believes that the Dollar Cravings menu will help diners customize their food.

Taco Bell has been focusing on menu innovation to attract new customers. The fast-food chain started a breakfast menu in March and launched a protein-heavy menu last month to cater to health-conscious customers. Last week, the company opened its first fast-casual restaurant taco concept — U.S. Taco Co. — in Huntington Beach to expand beyond the quick-service sector.

The new menu might also be a strategy to attract the youth, who had cut down quick-service restaurant visits in the past few years due to low-disposable income amid the sluggishly recovering economy. In fact, Taco Bell promoted its dollar menu, last week, on Snapchat, a popular photo messaging smartphone app.

Fast-Food War?

The U.S. fast-food sector is an immensely competitive industry, with major players offering attractive pricing points to bring in more traffic.

The menu comes when higher commodity costs are prompting other chains like McDonald's Corp. (MCD - Free Report) and The Wendy's Company (WEN - Free Report) to drop dollar menus and move toward more value-oriented pricing.

In fact, last year, McDonald's modified its Dollar Menu — introduced in 2002 — to the Dollar Menu & More, which includes items for $1, $2 and $5. Among others, Burger King Worldwide Inc. has also aggressively promoted its two-sandwiches-for-$5 deal.

Will Taco Bell’ Dollar Menu make Yum! Brands, with a Zacks Rank #3 (Hold), stronger? We would like to wait and see.

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