McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins projected between 1% and 5%, translating to earnings of approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
Kalinowski noted that this offer aims to attract consumers who are feeling the effects of inflation, encouraging them to visit McDonald’s and potentially purchase additional items beyond the $5 meal. However, achieving profitability will hinge on various factors, including ingredient costs, labor expenses, and overall overhead.
Arlene Spiegel, president of Arlene Spiegel & Associates, emphasized that the $5 meal deal is more about promotion than profitability. She mentioned that even if the deal lures customers back into the restaurants, franchise owners may not necessarily benefit from the additional revenue.
With about 95% of McDonald’s locations being franchise-owned, individual owners have the autonomy to set their prices while also managing costs such as rent, insurance, permits, and taxes. In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchisees often utilize promotional offers like the $5 meal deal to help offset those overhead expenses.
Despite this strategy, Spiegel described the meal deal as a “loss leader” designed to attract and retain customers. She pointed out that when factoring in the costs associated with labor, packaging, condiments, delivery, and marketing, franchise owners could effectively eliminate any profit from the deal.