McDonald’s is expected to earn a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%, equating to approximately $0.05 to $0.25 for each bundle sold, according to restaurant analyst Mark Kalinowski.
This initiative is seen as a strategy by McDonald’s to attract consumers who are feeling the pinch of inflation, with the hope that once customers enter the restaurant, they will purchase more than just the $5 meal. However, achieving profitability will largely depend on various factors, including the cost of ingredients, labor, and overhead expenses.
Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as being “more promotional than profitable.” She indicated that while the combo might draw diners back into the restaurant, franchise owners may not share in the profits. With about 95% of McDonald’s locations being franchisee-owned, these owners set their own prices while also managing extra costs like rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees often minimize overhead costs through promotional offers like the $5 meal deal. However, Spiegel noted that this bundle is primarily a “loss leader” aimed at attracting and retaining customers. After considering various costs, including labor, packaging, condiments, delivery charges, and marketing, franchise owners may find that these expenses effectively eliminate any profit from the items offered in the deal.