McDonald’s is expected to generate a profit from its $5 meal deal, but it will be quite modest. According to restaurant analyst Mark Kalinowski, the fast food chain’s profit margin on this combo meal will likely range from 1% to 5%, translating to earnings of about $0.05 to $0.25 per bundle sold.
Kalinowski noted that the meal deal is part of McDonald’s strategy to attract customers 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, the profitability of this deal is influenced by various factors, including the costs of ingredients, labor, and overhead expenses.
Arlene Spiegel, the president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.” She explained that while the promotional strategy may draw diners back into McDonald’s, franchisees may not necessarily benefit from the profits.
Approximately 95% of McDonald’s locations are franchise-operated, meaning franchise owners set their own prices and are burdened with additional costs, such as rent, insurance, permits, and taxes. Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees attempt to offset these overhead expenses through promotional offers, including the $5 meal deal.
Despite this approach, Spiegel pointed out that the offer is largely a “loss leader” aimed at attracting and retaining customers. Once factors like labor, packaging, condiments, delivery charges, and marketing costs are taken into account, she indicated that franchise owners might essentially eliminate profits on any items included in the deal.