McDonald’s is introducing a $5 meal deal that may yield only modest profits for the fast-food giant. According to restaurant analyst Mark Kalinowski, the anticipated profit margin for this combo is between 1% and 5%, translating to earnings of approximately $0.05 to $0.25 for each meal sold.
Kalinowski noted that this deal is a strategic move to attract budget-conscious consumers who have been facing inflation. The aim is to encourage customers to visit the restaurant and potentially spend more than the advertised $5.
However, profitability is influenced by various factors, including the costs of ingredients, labor, and operational expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the meal deal as “more promotional than profitable.”
Despite the potential to draw diners back to McDonald’s, franchise owners, who comprise about 95% of the restaurant chain, may not benefit significantly from the promotion. These franchisees set their own prices and handle costs such as rent, insurance, permits, and taxes.
In a statement in May, Joe Erlinger, McDonald’s U.S. president, explained that franchisees often utilize promotional offers like the $5 meal deal to offset their overhead expenses. Nevertheless, Spiegel emphasized that the bundle serves primarily as a “loss leader to capture and re-capture guests.” With the added costs for labor, packaging, condiments, delivery, and marketing, she concluded that franchise owners might end up with little to no profit from the items in the deal.