McDonald’s is poised to earn a modest profit from its recently introduced $5 meal deal, with expected profit margins ranging from 1% to 5%, equating to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant is implementing this deal as a strategy to attract price-sensitive customers amid rising inflation. The hope is that customers will not only opt for the $5 meal but will also make additional purchases during their visit.
However, the profitability of this meal deal is contingent upon various factors, including the costs of ingredients, labor, and overall overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the deal is viewed more as a marketing tactic rather than a significant profit generator.
It’s important to highlight that approximately 95% of McDonald’s locations are franchise-owned, meaning these owners independently set their prices and are responsible for managing various costs like rent, insurance, permits, and taxes. Joe Erlinger, the president of McDonald’s U.S., mentioned that franchisees employ promotional offerings, including the $5 meal, to help alleviate these overhead costs.
Despite the potential to draw customers back into stores, Spiegel emphasized that the meal bundle primarily serves as a “loss leader” designed to attract and retain customers. When considering the additional expenses associated with labor, packaging, condiments, delivery, and marketing, these costs can significantly diminish any potential profits from the meal deal for the franchise owners.