McDonald’s may see a profit from its $5 meal deal, although it is expected to be minimal. According to restaurant analyst Mark Kalinowski, the profit margin on the combo meal could range from 1% to 5%, translating to approximately $0.05 to $0.25 for each bundle sold.
Kalinowski believes this promotional offer is a strategy for McDonald’s to attract budget-conscious consumers who are feeling the pinch of inflation. The hope is that once customers are in the restaurant, they will make additional purchases beyond the $5 meal.
However, various factors will affect profitability, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, labeled the deal as “more promotional than profitable.” She noted that while the deal might drive traffic to the restaurants, it does not guarantee that franchise owners will benefit from these profits.
About 95% of McDonald’s locations are franchise-operated, meaning those owners have the autonomy to set their prices and must manage various expenses such as rent, insurance, permits, and taxes. Earlier this year, Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees often employ promotional tactics like the $5 meal deal to help offset overhead costs.
Spiegel pointed out that when factoring in the extra expenses associated with labor, packaging, condiments, delivery fees, and marketing, franchise owners may find that they effectively lose any profit on the items offered in the deal.