McDonald’s may find a modest profit from its $5 meal deal, although the margins are expected to be low. Restaurant analyst Mark Kalinowski estimates that the fast-food chain could see profit margins between 1% and 5%, translating to about $0.05 to $0.25 for each combo sold.
Kalinowski noted that this deal is a strategy for McDonald’s to attract consumers who are facing inflation challenges. The hope is that once customers come in for the $5 offer, they will purchase additional items.
However, the profitability of the deal relies on various factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
Despite the potential to bring customers back, it doesn’t guarantee profits for franchise owners, since approximately 95% of McDonald’s locations are franchise-owned. This means that owners are responsible for setting their prices and managing expenses such as rent, insurance, permits, and taxes.
In a recent statement, Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees use promotions like the $5 meal deal as a way to offset these overhead costs. However, Spiegel explained that the deal essentially acts as a “loss leader” aimed at enticing and re-engaging customers. When considering additional costs like labor, packaging, condiments, delivery, and marketing, franchise owners often find that profits from the meal deal are substantially diminished.