McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%. This translates to a profit of roughly $0.05 to $0.25 for each meal sold, as reported by restaurant analyst Mark Kalinowski.
The chain is introducing this deal to attract customers who are feeling the strain of inflation, hoping that those who visit will purchase additional items beyond the $5 offer.
However, the profitability of the combo is influenced by various factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that while the $5 meal deal serves as a promotional strategy, it is not primarily designed for profitability.
Spiegel also highlighted that approximately 95% of McDonald’s locations are franchise-owned. This means that franchise owners set their own pricing and must manage various operational costs such as rent, insurance, permits, and taxes.
In a previous statement, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees attempt to offset these overhead costs by offering promotional deals like the $5 meal. Nevertheless, Spiegel remarked that the bundle is largely a “loss leader,” aimed at attracting and retaining customers.
When considering additional expenses like labor, packaging, condiments, delivery fees, and marketing, franchise owners may find that any potential profit from the deal is largely eliminated.