McDonald’s is introducing a $5 meal deal that, while expected to attract customers, is projected to yield only a modest profit margin of between 1% and 5%. This translates to roughly $0.05 to $0.25 in profit for each combo sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant aims to appeal to consumers who are feeling the pinch of inflation by providing an enticing offer that encourages them to return to the restaurant. The idea is that once customers are inside, they may be tempted to purchase additional items beyond the initial $5 deal.
However, the ability to turn a profit from this promotional move will hinge on various expenses, including ingredient costs, labor, and overhead. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, describes the $5 meal deal as “more promotional than profitable.” She emphasizes that while this strategy could help draw diners back, franchise owners—who run about 95% of McDonald’s locations—are responsible for managing their own costs, such as rent, insurance, and taxes.
Franchise owners often rely on promotional deals to attract customers despite the challenges of overhead expenses. However, after accounting for costs related to labor, packaging, and marketing, many franchisees may find that the deal does not significantly boost their profits.
This strategy could be seen as a double-edged sword for McDonald’s franchisees. While it is an effective means to draw customers back after a challenging economic period, it also highlights the delicate balance between attracting customers with low prices and maintaining profitability.
In summary, McDonald’s $5 meal deal is a calculated effort to bring diners back while navigating the complexities of cost management. It is hopeful that by re-engaging customers, McDonald’s can strengthen its sales and foster long-term loyalty despite the immediate challenges faced by individual franchise owners.