McDonald’s $5 Meal Deal: A Bargain or a Profit-Busting Strategy?

McDonald’s could see a modest profit from its new $5 meal deal, although the profit margin is expected to be low, ranging from 1% to 5%. Restaurant analyst Mark Kalinowski estimates that this translates to earnings of about $0.05 to $0.25 for each meal bundle sold.

The fast-food giant aims to attract consumers feeling the pinch from inflation with this offer. However, the strategy also relies on the hope that customers will purchase additional items beyond the $5 deal once they are inside the restaurant.

Profitability is contingent upon various factors, including the cost of ingredients, labor, and overall operational expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, emphasized that the $5 meal deal is designed to be “more promotional than profitable.”

Spiegel noted that while the combo might draw diners back into McDonald’s, franchisees, who own about 95% of McDonald’s locations, may not see significant financial gain. Each franchisee determines their pricing and bears the burden of costs such as rent, insurance, permits, and taxes.

In comments from May, McDonald’s U.S. president Joe Erlinger explained that franchisees often turn to promotional offers, including the $5 meal deal, to manage these overhead expenses. However, Spiegel referred to the deal as a “loss leader,” meant to attract and retain customers. After accounting for labor, packaging, condiments, delivery, and marketing costs, she indicated that franchise owners likely eliminate any potential profit from the bundle altogether.

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