McDonald’s is set to face its first lawsuit linked to the E. coli outbreak associated with its Quarter Pounder burgers. Despite this challenge, the fast-food chain is optimistic that its new $5 meal deal will bring in revenue, albeit with modest profit margins.
According to restaurant analyst Mark Kalinowski, McDonald’s anticipates profit margins ranging from 1% to 5% on the meal combo, translating to approximately $0.05 to $0.25 for each sale. This strategy is part of a broader effort to attract inflation-weary customers back through their doors, encouraging them to make additional purchases beyond the $5 meal.
However, the profitability of this meal deal is contingent on several factors, including the costs associated with ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
She noted that although it may increase customer foot traffic, franchisees may not necessarily benefit financially. Approximately 95% of McDonald’s locations are operated by franchise owners, who set their own pricing and must manage additional costs such as rent, insurance, permits, and taxes.
McDonald’s U.S. president, Joe Erlinger, previously mentioned that franchisees often run promotional offers like the $5 meal deal to help offset these overhead costs. Nonetheless, Spiegel commented that the combo serves primarily as a “loss leader” aimed at attracting and retaining customers.
When factoring in the extra expenses associated with labor, packaging, condiments, delivery charges, and marketing, she concluded that franchise owners “basically wipe out any profit on any one or all of the items in the deal.”