McDonald’s is poised to earn a modest profit from its $5 meal deal, with expected profit margins ranging from 1% to 5%, translating to approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski.
This meal deal is a strategy employed by McDonald’s to attract inflation-weary consumers back into their restaurants, with the hope that they will purchase additional items beyond just the $5 meal.
However, the profitability of this deal hinges on several factors, including ingredient costs, labor, and overall overhead expenses. Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, described the $5 deal as “more promotional than profitable.”
Even if this offering succeeds in drawing customers, it may not ensure that franchisees reap the benefits, since about 95% of McDonald’s locations are franchisee-owned. Franchise owners set their prices and must also contend with extra costs such as rent, insurance, permits, and taxes.
In a statement from May, Joe Erlinger, the U.S. president of McDonald’s, noted that franchisees often try to offset these costs by implementing promotional strategies like the $5 meal deal. Nevertheless, Spiegel cautioned that the deal functions more as a “loss leader” aimed at attracting customers rather than a significant profit generator.
She explained that once franchise owners account for additional expenses related to labor, packaging, condiments, delivery, and marketing, the potential profit from the meal deal is largely diminished.