McDonald’s stands to gain a modest profit margin from its new $5 meal deal, estimated between 1% and 5%, translating to a profit of $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
Kalinowski suggests that this deal aims to attract consumers who are feeling the effects of inflation. The hope is that once customers enter the restaurant for the $5 offer, they will be enticed to make additional purchases.
However, the profitability of this meal deal hinges on various factors, including the costs associated with ingredients, labor, and overall overhead expenses.
Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.” She noted that while the offering might entice customers back to the restaurant, franchise owners may not necessarily benefit from the profits generated.
Approximately 95% of McDonald’s locations are franchise-owned, which means these franchisees determine their pricing and must manage extra costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, stated that franchisees often use promotional deals like the $5 meal to offset high overhead expenses. Nevertheless, Spiegel pointed out that the bundle serves as a “loss leader” aimed at attracting and retaining customers.
When taking into account the various costs of labor, packaging, condiments, delivery, and marketing, she concluded that franchise owners “effectively eliminate any profit from any one or all of the items in the deal.”