McDonald’s is poised to earn a modest profit from its $5 meal deal, projecting a profit margin between 1% to 5%, which translates to earnings of approximately $0.05 to $0.25 per bundle sold, as noted by restaurant analyst Mark Kalinowski.
This meal promotion is part of McDonald’s strategy to attract consumers who are feeling the effects of inflation, with the hope that once customers are inside the restaurant, they will purchase additional items beyond the $5 offer.
However, the company’s ability to turn a profit on this deal hinges on various factors such as ingredient costs, labor, and other overhead expenses.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.” She highlighted that even if the promotion drives traffic to the restaurants, it doesn’t guarantee profits for franchise owners.
With approximately 95% of McDonald’s locations being franchise-owned, individual franchisees set their own prices and face various overhead costs, including rent, insurance, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., noted that franchisees attempt to minimize these expenses through promotional offerings like the $5 meal deal.
However, Spiegel pointed out that the bundle ultimately serves more as a “loss leader” aimed at attracting and retaining customers. When considering the additional costs associated with labor, packaging, condiments, delivery, and marketing, she suggested that owners may effectively eliminate any profit from the components included in the meal deal.