McDonald’s may see a profit from its $5 meal deal, but the gains are expected to be quite modest. Restaurant analyst Mark Kalinowski estimates that the profit margin on this combo meal will range from 1% to 5%, translating to approximately $0.05 to $0.25 per bundle sold.
Kalinowski points out that this promotional strategy aims to attract consumers who are feeling the pinch of inflation, with hopes that once they enter the restaurant, they will purchase more than just the $5 meal.
However, the profitability of the meal deal will hinge on various factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the deal is more about promotion than profitability.
Furthermore, even if the meal deal successfully draws customers back in, it’s uncertain whether franchise owners will benefit financially. Approximately 95% of McDonald’s locations are franchise-owned, meaning franchisees set their own prices and bear additional expenses like rent, insurance, and taxes.
In May, McDonald’s U.S. president, Joe Erlinger, mentioned that franchisees typically use promotional offers, such as the $5 deal, to help manage overhead costs. Nonetheless, Spiegel described the bundle as a “loss leader” meant to attract and retain customers. She explained that once labor, packaging, condiments, delivery, and marketing expenses are considered, franchise owners essentially eliminate any potential profits from the items included in the deal.