McDonald’s may generate a modest profit from its $5 meal deal, but analysts indicate that the profit margin will be low, ranging between 1% and 5%. According to restaurant analyst Mark Kalinowski, this translates to a profit of approximately $0.05 to $0.25 for each meal sold.
Kalinowski explains that the meal deal is an attempt by McDonald’s to attract consumers who are feeling the pinch of inflation. The hope is that, while customers are drawn in by the $5 offer, they will purchase additional items.
However, the ability to achieve profitability is contingent on several factors, such as ingredient costs, labor expenses, and general overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, emphasizes that the $5 meal deal is “more promotional than profitable.”
Moreover, the profits from this deal may not necessarily benefit the franchise owners, as around 95% of McDonald’s locations are franchisee-owned. Each franchisee determines their own pricing and must manage various costs, including rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, remarked that franchisees often implement promotional strategies like the $5 meal deal to offset their overhead. Nonetheless, Spiegel notes that such deals serve primarily as “loss leaders” designed to attract and retain customers. After accounting for labor, packaging, condiments, delivery fees, and marketing expenses, franchise owners often find their profits significantly diminished.