McDonald’s is expected to achieve a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold, according to analyst Mark Kalinowski. This promotion is part of the fast-food chain’s strategy to attract inflation-weary customers back to its restaurants, with the hope that once they are inside, they will purchase more than just the discounted meal.
However, the profitability of this deal will be influenced by various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 offer is more of a promotional strategy than a lucrative venture.
Most McDonald’s locations, about 95%, are owned by franchisees, meaning they have the autonomy to set their own prices and manage additional costs like rent, insurance, and taxes. McDonald’s U.S. president Joe Erlinger mentioned in May that franchisees often counterbalance these overhead expenses with promotional offers such as the $5 meal deal.
Spiegel emphasized that this bundle serves as a “loss leader” to attract and retain customers. After considering the expenditures involved in labor, packaging, condiments, delivery, and marketing, she suggested that franchisees may end up eliminating any profits from the items included in the deal.