McDonald’s is expected to achieve a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to about $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This new offering is part of the fast-food chain’s strategy to attract consumers who are feeling the pinch of inflation. The goal is to encourage customers not only to purchase the $5 meal but also to buy additional items while they are in the restaurant.
The profitability of the deal will be influenced by various factors, including ingredient costs, labor expenses, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
Spiegel pointed out that the roughly 95% of McDonald’s locations that are franchise-owned complicate the potential for profits, as franchise owners are responsible for setting their own prices and managing overhead expenses such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, the president of McDonald’s U.S., noted that franchise owners often employ promotions like the $5 meal to help offset these costs. However, Spiegel emphasized that this meal deal might serve primarily as a “loss leader” designed to attract customers. When additional expenses like labor, packaging, condiments, delivery, and marketing are taken into account, she stated that franchise owners could effectively eliminate profits from the individual items included in the deal.