McDonald’s anticipates generating a profit from its $5 meal deal, although the profit margin will be modest. According to restaurant analyst Mark Kalinowski, the fast food giant’s profit on this combo is estimated to fall between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold.
Kalinowski mentioned that the promotion is aimed at attracting consumers who have been impacted by inflation, with hopes that while visiting, they will purchase additional items beyond the $5 offer.
However, the profitability of this deal is contingent on various factors, including the costs associated with ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
While the meal deal may draw diners into the restaurant, Spiegel pointed out that franchise owners, who operate about 95% of McDonald’s locations, may not see commensurate profits. Franchisees individually set their own prices and bear additional expenses such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., explained that franchise owners often utilize promotional offers like the $5 meal deal to help manage their overhead costs. Nevertheless, Spiegel indicated that the bundle essentially serves as a “loss leader” designed to attract and retain customers. Once the extra costs for labor, packaging, condiments, delivery, and marketing are taken into account, she noted that franchise owners could effectively erase any potential profit from the deal.