McDonald’s is anticipated to make a profit from its $5 meal deal, albeit a modest one. According to restaurant analyst Mark Kalinowski, the profit margin on the combo is expected to range between 1% and 5%, translating to around $0.05 to $0.25 per bundle sold.
Kalinowski pointed out that this deal aims to attract consumers who are feeling the pinch of inflation, with the hope that once they are inside the restaurant, they will make additional purchases beyond the $5 offer.
However, the actual profitability of the deal hinges on several factors, including the costs of ingredients, labor, and other overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
Even if this combo succeeds in drawing customers back to the restaurants, the profits may not necessarily go to franchise owners due to the nature of franchise operations. Approximately 95% of McDonald’s locations are franchisee-owned, meaning the owners set their own prices and deal with various costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, the president of McDonald’s U.S., mentioned that franchisees often try to manage their overhead costs by implementing promotional strategies like the $5 meal deal. Nevertheless, Spiegel noted that the bundle functions more as a “loss leader to capture and recapture guests.”
When considering the additional expenses associated with labor, packaging, condiments, delivery fees, and marketing, she indicated that franchise owners might ultimately eliminate any profit from the items included in the deal.