McDonald’s may earn a modest profit from its new $5 meal deal, according to industry analyst Mark Kalinowski. The profit margin on this combo meal is expected to be between 1% and 5%, translating to a profit of approximately $0.05 to $0.25 for each bundle sold.
Kalinowski mentioned that the initiative is part of McDonald’s strategy to attract budget-conscious consumers amid rising inflation. The hope is that once customers come in for the meal deal, they would also purchase additional items.
However, the actual profitability of this meal deal will hinge on various factors including the cost of ingredients, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, noted that while the $5 deal serves primarily as a promotional tactic rather than a profit-generating strategy, it does aim to draw in diners.
It is important to note that approximately 95% of McDonald’s locations are franchised, meaning that individual owners are responsible for setting their prices and managing extra expenses like rent, insurance, and taxes. In a statement from May, McDonald’s U.S. president Joe Erlinger highlighted that franchisees use promotional offers like the $5 meal deal to help offset their overhead costs.
Despite the potential benefits of drawing customers into restaurants, Spiegel explained that the additional costs associated with labor, packaging, condiments, delivery, and marketing can significantly erode any potential profits from the meal deal.