McDonald’s is expected to see only a modest profit from its $5 meal deal, with profit margins ranging from 1% to 5%. This translates to approximately $0.05 to $0.25 earned for each meal sold, as reported by restaurant analyst Mark Kalinowski.
According to Kalinowski, the meal deal aims to attract consumers feeling the pinch of inflation. McDonald’s hopes that once diners enter the restaurant for the $5 offering, they will make additional purchases.
The potential for profit will depend on various factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as being “more promotional than profitable.”
Even if the deal succeeds in bringing customers into McDonald’s locations, franchise owners may not share in the profits. About 95% of McDonald’s restaurants are franchise-owned, which means that individual owners set their own pricing and are responsible for additional expenses, like rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., mentioned that franchisees often use promotional offers like the $5 meal to reduce overhead costs. However, Spiegel noted that the deal acts more as a “loss leader” to attract and retain customers. She explained that once the costs of labor, packaging, condiments, delivery fees, and marketing are included, owners may find that any potential profit is essentially negated.