McDonald’s is poised to generate a profit from its $5 meal deal, although the earnings will be modest. According to restaurant analyst Mark Kalinowski, the profit margin for the combo is expected to be between 1% and 5%, translating to a profit of approximately $0.05 to $0.25 for each meal sold.
Kalinowski noted that the meal deal is part of McDonald’s strategy to attract inflation-weary customers back to its establishments, hoping that once inside, they will choose to purchase additional items beyond the $5 offering.
However, the profitability of this meal deal will rely on various factors including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, describes the $5 meal deal as “more promotional than profitable.”
While the deal may entice customers back to McDonald’s, it does not guarantee that franchisees will reap the benefits. Approximately 95% of McDonald’s locations are owned by franchisees who set their own pricing and must manage additional costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchisees often use promotional offers like the $5 meal deal to help alleviate overhead costs. Nonetheless, Spiegel remarked that the bundle functions more as a “loss leader” aimed at attracting and retaining customers. When factoring in extra costs associated with labor, packaging, condiments, delivery charges, and marketing, she stated that owners effectively eliminate any potential profits from the items in the deal.