McDonald’s is expected to see modest profits from its $5 meal deal, with profit margins estimated to be between 1% and 5%, translating to roughly $0.05 to $0.25 per combo sold, as noted by restaurant analyst Mark Kalinowski.
This initiative aims to attract consumers who are feeling the strain of inflation, with hopes that once they enter the restaurant, they may also purchase additional items beyond the $5 offer. However, the profitability of this deal hinges on various factors, including ingredient costs, labor expenses, and overhead.
According to Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, the $5 meal deal is considered “more promotional than profitable.” She emphasized that while the deal may drive customers back, franchisees might not benefit significantly from any resulting profits.
Approximately 95% of McDonald’s locations are franchisee-owned, allowing owners to set their own prices while also managing their unique costs, such as rent, insurance, permits, and taxes. In May, McDonald’s U.S. president Joe Erlinger mentioned that franchisees aim to offset these expenses by implementing promotional offerings like the $5 meal deal.
Despite this effort, Spiegel reiterated that the combo operates more as a “loss leader” meant to attract and retain customers. When factoring in the added expenses for labor, packaging, condiments, delivery, and marketing, she pointed out that franchise owners often end up negating any profits from the promotional items.