McDonald’s is expected to generate a modest profit from its new $5 meal deal, with profit margins projected between 1% and 5%, translating to approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski.
Kalinowski noted that the meal deal is a strategy for McDonald’s to attract cost-conscious consumers struggling with inflation, with the hope that once customers are in the restaurant, they will purchase additional items beyond the $5 offering.
However, profitability for the fast-food giant hinges on various factors, including the rising costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, indicated that this meal deal is more focused on promotion than generating significant profits.
She emphasized that while the deal might bring diners back to McDonald’s, franchisees may not share in those gains. Approximately 95% of McDonald’s locations are franchise-owned, meaning that individual franchisees set their prices and manage expenses like rent, insurance, permits, and taxes.
In a previous statement, Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees often introduce various promotions, including the $5 meal deal, to offset overhead costs. Nonetheless, Spiegel described the offering as a “loss leader” intended to attract and retain customers.
After considering the added expenses for labor, packaging, condiments, delivery fees, and marketing, Spiegel pointed out that franchise owners might effectively eliminate any profit from the items included in the deal.