McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins ranging from 1% to 5%, equating to approximately $0.05 to $0.25 for each bundle sold, according to restaurant analyst Mark Kalinowski.
This meal deal is part of McDonald’s strategy to attract consumers who are feeling the pinch of inflation, with hopes that once customers enter the restaurant, they will purchase additional items beyond the $5 offering.
However, the profitability of the deal is contingent on various factors, including the rising costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
Even if the deal brings more diners into the restaurant, it does not guarantee that franchisees will see increased profits, as approximately 95% of McDonald’s locations are franchisee-operated. Consequently, franchise owners determine their own pricing and bear additional costs such as rent, insurance, permits, and taxes.
In May, McDonald’s U.S. president Joe Erlinger commented that franchisees manage these overhead expenses by offering promotions like the $5 meal deal. Nevertheless, Spiegel noted that the deal primarily serves as a “loss leader” aimed at attracting and retaining customers. After considering the costs associated with labor, packaging, condiments, delivery, and marketing, she pointed out that franchise owners may effectively eliminate any profit from the meal deal.