McDonald’s appears likely to secure a modest profit from its $5 meal deal, with expected profit margins ranging from 1% to 5%, amounting to approximately $0.05 to $0.25 per bundle sold, according to restaurant analyst Mark Kalinowski.
Kalinowski noted that this promotion is an effort by McDonald’s to attract consumers who are feeling the impact of inflation. The hope is that once customers are drawn in by the $5 offering, they may purchase additional items.
However, profitability will hinge on various factors, including ingredient costs, labor expenses, and overall operational costs.
Arlene Spiegel, president of Arlene Spiegel & Associates, remarked that the $5 meal deal is more focused on promotion than on generating profit. Even if this initiative successfully encourages dining in at the restaurant, it’s uncertain if franchisees will benefit financially, as about 95% of McDonald’s locations are franchise-owned. Franchise owners have the autonomy to set their own pricing while managing additional expenses like rent, insurance, permits, and taxes.
In comments made in May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees utilize promotional deals, such as the $5 meal, to help alleviate overhead costs. Nonetheless, Spiegel referred to the meal deal as a “loss leader” aimed at attracting and retaining customers. Once expenses for labor, packaging, condiments, delivery, and marketing are taken into account, franchise owners may find that any potential profits from the deal are effectively eliminated.