(Adds Taco Bell rotates items on its $1 menu in paragraph 11)
Dec 4 (Reuters) - McDonald's Corp said on Monday it would introduce new menus with $1, $2 and $3 items in early January as restaurants battle to win U.S. customers who have come to expect deals on fast food.
McDonald's is in a 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 $1, small McCafe drinks and bacon McDoubles for $2 and Happy Meals and triple cheeseburgers for $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 $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 U.S. operators support its ongoing turnaround plan that includes the new value menus.
McDonald's recent U.S. 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 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 regularly rotates the roughly 20 items on its $1 value menu. Subway, which made a huge splash a few years ago with its "$5 foot-long" special, is now offering a variety of six-inch sandwiches for $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 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," Goldin said. "There is going to be tremendous pressure to raise prices."
(Reporting by Lisa Baertlein in Los Angeles; Editing by Marguerita Choy and Lisa Shumaker)