McDonald’s may find itself making a modest profit from its new $5 meal deal, with profit margins estimated to be between 1% and 5%. According to restaurant analyst Mark Kalinowski, this translates to earnings of approximately $0.05 to $0.25 for each bundle sold.
The fast food giant aims to attract inflation-weary customers with this deal, hoping they will purchase additional items beyond the $5 offering once they are inside the restaurant.
However, profitability will hinge on various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
According to Spiegel, even if the combo effectively brings diners back to the restaurant, it may not lead to profits for franchisees. About 95% of McDonald’s locations are franchisee-owned, meaning that individual owners set their own prices and face costs such as rent, insurance, permits, and taxes.
In May, McDonald’s U.S. president Joe Erlinger noted that franchisees often implement promotional strategies, like the $5 meal deal, to reduce overhead costs. Nevertheless, Spiegel pointed out that the meal deal primarily acts as a “loss leader” intended to attract and retain customers. After considering the additional expenses of labor, packaging, condiments, delivery, and marketing, she stated that owners essentially eliminate any potential profit from the items included in the deal.