McDonald’s is set to generate a modest profit from its $5 meal deal, with profit margins anticipated to range between 1% and 5%. This translates to earnings of approximately $0.05 to $0.25 for every meal sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant sees this deal as a strategy to attract cost-conscious customers who may be feeling the effects of inflation. The goal is not only to bring them in for the $5 meal but to encourage them to make additional purchases once they are inside the restaurant.
However, the profitability of this meal deal hinges on various factors, including ingredient costs, labor expenses, and overall overhead. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, noted that the $5 meal deal is “more promotional than profitable.”
Despite the potential to draw diners back into McDonald’s establishments, Spiegel indicated that franchisees might not see the benefits of these promotions. With around 95% of McDonald’s locations being franchise-owned, individual owners set their own prices and must deal with additional expenses like rent, insurance, permits, and taxes.
In a statement made in May, Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees attempt to lower their overhead by implementing promotional deals like the $5 meal. Nevertheless, according to Spiegel, the bundle can serve more as a “loss leader” aimed at attracting customers rather than a significant profit generator. Once factoring in other expenses such as labor, packaging, condiments, delivery costs, and marketing, franchisees may ultimately eliminate any potential profit from the items included in the deal.