McDonald’s is set to generate a profit from its $5 meal deal, albeit a modest one. Restaurant analyst Mark Kalinowski estimates that the fast food chain’s profit margin on this combo will be between 1% and 5%, translating to approximately $0.05 to $0.25 for each bundle sold.
According to Kalinowski, the $5 deal is part of McDonald’s strategy to draw in consumers who are feeling the sting of inflation. The goal is not only to entice customers with this low-priced offer but also to encourage them to purchase additional items while they are in the restaurant.
However, the potential for profit hinges on several factors, including the costs associated with ingredients, labor, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, describes the meal deal as “more promotional than profitable.”
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Despite the hope that the combo will attract diners back into the establishment, it remains uncertain whether franchise owners will experience any significant profits. Approximately 95% of McDonald’s restaurants are franchise-owned, meaning that individual owners set their own pricing and must manage extra expenses like rent, insurance, permits, and taxes.
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In a statement from May, Joe Erlinger, McDonald’s U.S. president, noted that franchisees often aim to offset these overhead costs through promotional pricing, such as the $5 meal deal. However, Spiegel points out that the bundle primarily serves as a “loss leader” intended to attract and retain customers. With the additional costs of labor, packaging, condiments, delivery, and marketing, she suggests that franchise owners may effectively erase any profit from the meal deal.