McDonald’s is expected to see a modest profit from its $5 meal deal, with projected profit margins ranging from 1% to 5%, equating to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This promotional pricing is part of McDonald’s strategy to attract consumers who are feeling the pressure of inflation, encouraging them to enter the restaurant and potentially spend on more than just the discounted meal.
However, several factors, including ingredient costs, labor, and overhead, will impact the actual profitability of the deal. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, noted that the $5 meal is mainly a promotional effort rather than a significant profit-generating initiative.
Additionally, since about 95% of McDonald’s locations are franchise-owned, individual franchisees manage their pricing and bear various costs like rent, insurance, permits, and taxes. McDonald’s U.S. president, Joe Erlinger, highlighted that franchisees often implement promotional offers to help offset these overhead expenses.
Spiegel emphasized that while the combo might attract customers, it mainly serves as a “loss leader” designed to draw in and retain diners. When accounting for costs associated with labor, packaging, condiments, delivery, and marketing, franchise owners may find their profits from these meal combinations nearly nonexistent.