McDonald’s is set to offer a $5 meal deal that may bring in a small profit margin of between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This initiative aims to attract consumers who are feeling the pinch of inflation, with hopes that once customers are inside, they will spend beyond the $5 offer. However, the profitability of the deal hinges on various factors, such as ingredient costs, labor, and operating expenses.
Consultant Arlene Spiegel noted that the $5 meal deal is more about promotions than profits. Although the combo may bring diners back to McDonald’s, franchisees may not see significant profits as approximately 95% of the restaurants are franchise-owned. These owners have the flexibility to set their prices but are also responsible for managing additional costs, including rent, insurance, permits, and taxes.
Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees often aim to offset these overhead expenses by introducing promotional deals like the $5 meal. Nevertheless, Spiegel described the deal as a “loss leader” intended to attract and retain customers. After accounting for costs associated with labor, packaging, condiments, delivery, and marketing, she indicated that franchise owners may effectively eliminate any profit from the items included in the deal.