McDonald’s could potentially earn some profit from its $5 meal deal, although the gains are expected to be modest. According to restaurant analyst Mark Kalinowski, the profit margin for the combo meal is estimated to be between 1% and 5%, translating to roughly $0.05 to $0.25 for each meal sold.
Kalinowski believes this promotion is part of McDonald’s strategy to attract consumers who are feeling the pinch of inflation, encouraging them to enter the restaurant and consider additional purchases beyond the $5 meal.
However, the profitability of the meal deal will hinge on various factors, including the costs of ingredients, labor, and overall operating expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, indicates that the $5 meal deal is “more promotional than profitable.” She points out that while the combo may draw customers back to McDonald’s, franchisees may not necessarily reap the financial benefits.
Approximately 95% of McDonald’s locations are franchise-owned, meaning that the franchisees set their own prices and bear additional expenses like rent, insurance, permits, and taxes. In May, Joe Erlinger, the president of McDonald’s U.S. operations, noted that franchisees often offer promotions like the $5 meal deal to help offset these costs.
Spiegel further explains that the meal deal serves primarily as a “loss leader” aimed at capturing and retaining customers. Once the costs associated with labor, packaging, condiments, delivery, and marketing are taken into account, franchise owners often find that their profits on the items included in the deal are effectively eliminated.