McDonald’s is expected to see only a modest profit from its new $5 meal deal, with profit margins estimated between 1% and 5%, translating to about $0.05 to $0.25 for each bundle sold, according to restaurant analyst Mark Kalinowski.
This value meal is part of McDonald’s strategy to attract consumers who are feeling the pinch of inflation, and the company hopes that once customers come in for the deal, they will purchase additional items as well.
However, the profitability of the meal deal hinges on various factors, including the cost of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, indicated that the $5 meal deal functions more as a promotional effort rather than a significant source of profit.
Although the combo may entice diners to visit the restaurant, its profitability for franchise owners may not be straightforward. Approximately 95% of McDonald’s locations are franchise-owned, meaning that individual owners set their own prices and manage various expenditures such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, the president of McDonald’s U.S., acknowledged that franchisees utilize promotional offers like the $5 deal to offset these overhead costs. However, Spiegel noted that this bundle acts as a “loss leader” aimed at attracting and retaining customers. After considering costs associated with labor, packaging, condiments, delivery, and marketing, franchise owners could potentially eliminate any profit from the items included in the combo.