McDonald’s is anticipating modest profits from its new $5 meal deal, despite the ongoing challenges it faces, including a recent lawsuit tied to an E. coli outbreak involving their Quarter Pounder burger.
According to restaurant analyst Mark Kalinowski, the fast-food chain could see profit margins on the meal deal ranging from 1% to 5%, equating to approximately $0.05 to $0.25 for each combo sold. This promotion aims to attract consumers who are feeling the crunch of inflation, with hopes that once customers are inside, they will make additional purchases beyond the $5 offer.
However, the profitability of this initiative is contingent on several external elements, such as the costs of ingredients, labor, and general overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal deal is primarily designed as a promotional strategy rather than a moneymaker.
While enticing diners back into the restaurants is the goal, Spiegel cautioned that this may not translate into profit for franchise owners. Approximately 95% of McDonald’s locations are franchise-operated, meaning individual owners are responsible for their pricing and must handle various expenses, including rent, insurance, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees often employ promotional offers like the $5 meal deal to help manage those overhead costs. Nonetheless, Spiegel described the deal as a “loss leader,” primarily aimed at attracting and retaining customers. When factoring in labor, packaging, condiments, delivery costs, and marketing, she emphasized that franchise owners may effectively eliminate any profit on the combo or its components.