McDonald’s is predicted to achieve only a modest profit margin from its new $5 meal deal, estimated to be between 1% and 5%, equating to about $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This meal deal is part of McDonald’s strategy to entice inflation-weary consumers back into its restaurants, aiming for customers to make additional purchases beyond just the $5 offer.
Profitability will hinge on various factors, including the costs of ingredients, labor, and general overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal as “more promotional than profitable.”
While it could draw diners into the restaurants, franchise owners might not benefit from the profits, as approximately 95% of McDonald’s locations are franchisee owned. Franchise owners set their own pricing and must account for additional costs such as rent, insurance, permits, and taxes.
McDonald’s U.S. president, Joe Erlinger, mentioned that franchisees often look to promotional offers like the $5 meal to alleviate their overhead costs. Nevertheless, Spiegel characterized the bundle as a “loss leader” intended to attract and retain customers. After considering the expenses for labor, packaging, condiments, delivery, and marketing, she noted that owners may effectively eliminate any profits from the items included in the deal.