McDonald’s stands to generate a modest profit from its $5 meal deal, with estimates suggesting a profit margin ranging from 1% to 5%. This translates to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant is hoping that this deal will entice consumers dealing with inflation to visit their locations more frequently, with the expectation that once inside, customers will purchase additional items beyond the $5 offer.
However, the profitability of this deal will hinge on various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, emphasized that the $5 meal deal is more promotional than profitable.
Moreover, the benefits of the deal may not necessarily trickle down to franchise owners. Approximately 95% of McDonald’s locations are franchise-operated, allowing owners to set their own prices and manage expenses related to rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, noted that franchisees often use promotional deals like the $5 meal to offset overhead costs. Nonetheless, Spiegel described the bundle as a “loss leader” aimed at attracting and retaining customers.
When considering the added expenses of labor, packaging, condiments, delivery, and marketing, she indicated that franchise owners could effectively eliminate any profit margin from the items included in the deal.