McDonald’s is expected to generate a modest profit from its new $5 meal deal, with profit margins estimated between 1% and 5%. This translates to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
The initiative is part of McDonald’s strategy to attract cost-conscious consumers facing inflation and to encourage them to purchase additional items beyond the $5 meal offering.
However, profitability will also be influenced by various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as being “more promotional than profitable.”
Moreover, even if the deal successfully drives traffic into restaurants, franchise owners might not benefit from the increased sales. Approximately 95% of McDonald’s locations are franchisee-owned, meaning that individual owners set their own pricing and bear costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., noted that franchisees attempt to offset overhead costs through promotional offers like the $5 meal deal. Nevertheless, Spiegel remarked that the deal serves primarily as a “loss leader” aimed at attracting and retaining customers.
After accounting for various expenses such as labor, packaging, condiments, delivery charges, and marketing, owners may end up eliminating any potential profit from the items included in the meal deal.