McDonald’s is expected to generate a profit from its new $5 meal deal, although the gains are projected to be modest. Restaurant analyst Mark Kalinowski anticipates that the profit margin on the combo will range from 1% to 5%, translating to approximately $0.05 to $0.25 earned for each bundle sold.
This deal is part of McDonald’s strategy to attract consumers who are feeling the pinch from inflation. The hope is that once customers are drawn in by the affordable meal, they will make additional purchases beyond the $5 offering.
However, the profitability of this deal is contingent on several factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, noted that the $5 meal deal is “more promotional than profitable.”
Even if this strategy brings diners back to the restaurant, it doesn’t guarantee profits for franchisees. With about 95% of McDonald’s locations being franchisee-owned, these owners set their own prices and face a variety of expenses such as rent, insurance, permits, and taxes.
McDonald’s U.S. president Joe Erlinger mentioned that franchisees often attempt to offset these costs by implementing promotional offers like the $5 meal deal. Nonetheless, Spiegel emphasized that the bundle acts more as a “loss leader aimed at capturing and re-capturing customers.” After accounting for costs associated with labor, packaging, condiments, delivery, and marketing, she pointed out that franchise owners often find any potential profit essentially eliminated.