McDonald’s $5 meal deal aims to attract budget-conscious consumers, yet the profit margin on this offering is expected to be minimal. According to restaurant analyst Mark Kalinowski, McDonald’s could see a profit margin ranging from just 1% to 5%, translating into earnings of only $0.05 to $0.25 per meal.
To counteract the effects of inflation on its customers, McDonald’s is optimistic that this deal will draw diners back into its restaurants, hoping they will make additional purchases beyond the meal deal. However, the overall profitability of this initiative is contingent on various factors, including ingredient costs, labor expenses, and overhead.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, emphasizes that the $5 meal deal is more focused on promotion rather than profitability. Although it may entice customers to return, franchise owners, who operate about 95% of McDonald’s locations, might not see any financial benefit due to their ability to set prices and the burden of costs such as rent, insurance, permits, and taxes.
Furthermore, the costs associated with labor, packaging, condiments, delivery charges, and marketing can eradicate any potential profits from the meal deal. According to Spiegel, while franchisees may implement promotional offers to reduce overhead, the overall arrangement often results in a loss leader strategy to win back customer loyalty rather than generating substantial profits.
In tough economic times, McDonald’s $5 meal deal represents a strategy that could foster customer loyalty and bring people through the doors again, ultimately revitalizing business for franchise owners, even if the immediate financial benefits appear limited. Adapting to consumer needs demonstrates the company’s commitment to retaining its customer base, indicating a positive outlook for the future.