McDonald’s is expecting to generate a modest profit from its new $5 meal deal, projecting a profit margin between 1% and 5%. This could translate to earnings of just $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski. The fast-food chain is introducing this deal as a strategy to attract cost-conscious consumers who are feeling the pinch of inflation. The hope is that once these customers enter the restaurant, they will be inclined to purchase additional items beyond the $5 offering.
However, the potential for profitability will be strongly influenced by various factors, including ingredient costs, labor, and other overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, commented that while the $5 meal deal may draw in customers, it is more of a promotional strategy rather than a substantial profit-making endeavor.
Approximately 95% of McDonald’s outlets are franchisee-operated, meaning that individual franchise owners set their own prices and must manage various additional costs, such as rent, insurance, permits, and taxes. McDonald’s U.S. president Joe Erlinger noted that franchisees often employ promotional offers like the $5 meal deal to offset these overhead costs.
Despite the efforts to attract diners, Spiegel pointed out that the combined expenses of labor, packaging, delivery, and marketing could negate profits, potentially leading franchise owners to “wipe out any profit on any one or all of the items in the deal.”
In summary, while the $5 meal deal may serve as a strategic move to bring customers back into McDonald’s restaurants, its effectiveness as a profitable venture remains uncertain, particularly due to the unique challenges faced by franchise owners.
This promotional strategy demonstrates McDonald’s commitment to adapting to changing consumer behaviors and economic challenges. By taking steps to bring customers back through affordable meal options, McDonald’s is positioning itself to potentially create more long-term loyalty, which could ultimately lead to better overall profitability in the future.