McDonald’s is anticipated to generate a profit from its $5 meal deal, although it will likely be modest. According to restaurant analyst Mark Kalinowski, the profit margin on this combo meal is expected to be between 1% and 5%, translating to about $0.05 to $0.25 for each meal sold.
Kalinowski noted that this deal is a strategy by McDonald’s to attract consumers who are feeling the effects of inflation, with the hope that once they visit the restaurant, they will purchase additional items beyond the $5 meal.
However, the ability to turn a profit is contingent on various variables, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, mentioned that the $5 meal deal is more focused on promotion than profitability.
Although the deal may bring customers back to the restaurant, it may not benefit franchise owners in terms of profits. Approximately 95% of McDonald’s locations are franchisee-owned, meaning owners have the authority to set their own prices while also managing extra costs like rent, insurance, permits, and taxes.
In a statement from May, Joe Erlinger, president of McDonald’s U.S., indicated that franchise operators often attempt to offset their overhead through promotional offers like the $5 meal deal. Nonetheless, Spiegel articulated that the meal is primarily a “loss leader” aimed at attracting and retaining customers.
Once all expenses, including labor, packaging, condiments, delivery fees, and marketing, are tallied, owners could find that any potential profits from the deal are effectively eliminated.