McDonald’s is launching a $5 meal deal with the hope of enticing cost-conscious customers back into its restaurants, even though the profit margins from this promotion will be slim. According to restaurant analyst Mark Kalinowski, the profit for the fast-food giant from each meal combo could be as low as $0.05 to $0.25, translating to a profit margin of 1% to 5%.
The introduction of the meal deal is a strategy aimed at attracting consumers who may be feeling the pinch of inflation. Once customers are inside, McDonald’s hopes they will consider purchasing additional items beyond just the meal deal. However, the overall profitability of the promotion will depend on various factors, including the cost of labor, ingredients, and other operational expenses.
Arlene Spiegel, president of Arlene Spiegel & Associates, points out that although the $5 meal deal may succeed in drawing diners, it may not result in substantial profits for franchise owners. With about 95% of McDonald’s locations being franchisee-operated, those owners are responsible for setting prices and managing costs, including rent and taxes.
Spiegel added that promotional offers like the $5 meal deal may function more as “loss leaders,” designed to attract customers rather than generate immediate profits. The multitude of expenses involved—such as labor, packaging, condiments, and marketing—can effectively negate any potential profit associated with the deal.
In a positive light, this strategy shows McDonald’s adaptability in a challenging economic environment. By focusing on bringing customers back and encouraging them to explore the menu further, the fast-food chain demonstrates a commitment to meeting consumer needs while navigating the complexities of operating in the current market. This initiative could pave the way for stronger customer loyalty and increased sales in the long run, even if the immediate financial gains are modest.