McDonald’s is anticipating that its $5 meal deal will generate some profit, albeit modestly. According to restaurant analyst Mark Kalinowski, the fast-food chain expects a profit margin between 1% and 5% for each combo sold, translating to roughly $0.05 to $0.25.
Kalinowski pointed out that this meal deal is a strategy to attract inflation-sensitive customers back to the restaurant, with hopes that once they are inside, they will purchase additional items beyond the $5 offer.
However, the profitability of this meal deal is influenced by several variables, including ingredient costs, labor expenses, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, labeled the $5 meal deal as “more promotional than profitable.”
Spiegel highlighted that even if the meal deal succeeds in drawing diners back, there is no guarantee that franchise owners will reap those profits. Approximately 95% of McDonald’s locations are franchised, where owners manage their own pricing and bear extra costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., noted that franchisees often seek to alleviate overhead by offering promotions like the $5 meal deal. Yet, Spiegel remarked that such bundles act primarily as “loss leaders” aimed at attracting customers.
When accounting for the various expenses related to labor, packaging, condiments, delivery fees, and marketing, she indicated that franchise owners often eliminate any potential profit from the items included in the deal.