McDonald’s may see limited profits from its $5 meal deal, with estimated profit margins ranging from 1% to 5%, translating to about $0.05 to $0.25 per meal sold, according to restaurant analyst Mark Kalinowski. This pricing strategy is designed to attract consumers dealing with inflation, with the hope that they will make additional purchases once inside the restaurant.
However, the chain’s profitability on this meal deal will be influenced by various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal deal is more about promotion than profit.
The majority of McDonald’s locations, approximately 95%, are franchise-owned, meaning individual franchisees determine their own pricing and bear the brunt of additional expenses like rent, insurance, permits, and taxes. Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees often use promotions like the $5 meal deal to balance these overhead costs.
Despite the potential for drawing customers back into the restaurants, Spiegel emphasized that the bundle primarily serves as a “loss leader” aimed at attracting and retaining visitors. After considering labor, packaging, condiments, delivery charges, and marketing costs, franchise owners may struggle to break even on the meal deal.