McDonald’s is expected to see a modest profit from its newly introduced $5 meal deal, with estimated profit margins ranging from 1% to 5%, translating to approximately $0.05 to $0.25 for each combo sold, as indicated by restaurant analyst Mark Kalinowski.
This meal deal aims to attract budget-conscious consumers affected by inflation, with the hope that once customers are in the restaurant, they will make additional purchases beyond the $5 offer. However, profitability will be influenced by various factors, including ingredient costs, labor expenses, and overheads.
According to Arlene Spiegel, president of Arlene Spiegel & Associates, the $5 meal deal is more about promotion than profit. Even if the offer successfully draws customers back, franchise owners may not see the profits due to the structure of McDonald’s business model. Approximately 95% of McDonald’s locations are franchise-owned, meaning that franchisees set their own pricing and bear additional costs, such as rent, insurance, permits, and taxes.
In a statement made in May, Joe Erlinger, the president of McDonald’s U.S., noted that franchisees often implement promotional deals like the $5 meal to offset their overheads. However, Spiegel remarked that the deal functions more as a “loss leader” designed to attract and retain customers. When considering expenses related to labor, packaging, condiments, delivery, and marketing, franchise owners may effectively eliminate any potential profit from the offered combo.