McDonald’s aims to attract cost-conscious customers with its new $5 meal deal, but analysts suggest profits may be limited. According to restaurant analyst Mark Kalinowski, the chain could earn a profit margin ranging from just 1% to 5%. This translates to profits of approximately $0.05 to $0.25 for each meal sold, reflecting the company’s strategy to draw in consumers who are feeling the pinch of inflation.
Kalinowski noted that this promotion is intended to entice customers back into McDonald’s outlets, with the hope that they will make additional purchases beyond the $5 meal. However, profitability hinges on various operational factors, including the costs of ingredients, labor, and overhead expenses.
Arlene Spiegel, president of Arlene Spiegel & Associates, emphasized that while the $5 meal deal could boost customer traffic, franchise owners may not see significant financial benefits. With around 95% of McDonald’s locations operated by franchisees, each owner sets their own prices and manages rising costs such as rent and insurance independently.
In May, McDonald’s U.S. president Joe Erlinger acknowledged that franchisees often implement promotions like the $5 meal deal to offset overhead costs. Despite this effort, Spiegel referred to the deal as more of a “loss leader,” which aims to attract and retain customers, while highlighting the difficulty franchisees face in maintaining profit margins once additional expenses are taken into account.
In summary, while McDonald’s $5 meal deal is a strategy to draw in price-sensitive consumers, the potential for significant profit is overshadowed by rising operational costs, particularly for franchise owners. Nevertheless, this approach could be a smart long-term strategy for customer retention and increased sales opportunities.