McDonald’s is expected to see modest profits from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to earnings of approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski. This initiative aims to attract consumers facing inflation, encouraging them to purchase more than just the $5 option once they enter the store.
However, the profitability of the meal deal is contingent on various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, noted that the $5 meal deal is primarily designed as a promotional strategy rather than a lucrative offering.
Despite the potential to draw customers back into the restaurant, it may not guarantee profits for franchisees, who own about 95% of McDonald’s locations. These franchise owners have the autonomy to determine their pricing and must manage extra expenses related to rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchisees often employ promotional deals like the $5 meal option to counterbalance their overhead costs. However, Spiegel emphasized that the deal acts as a “loss leader” to attract and retain customers. After accounting for additional expenses such as labor, packaging, condiments, delivery charges, and marketing, franchise owners often find that they eliminate any profit from the items included in the deal.