McDonald’s is expected to see a profit from its $5 meal deal, although the earnings will be modest. According to restaurant analyst Mark Kalinowski, the profit margin for each combo meal is anticipated to be between 1% and 5%, translating to approximately $0.05 to $0.25 per meal sold.
Kalinowski suggests that this deal aims to attract price-sensitive customers who have been affected by inflation, encouraging them to visit the restaurant and possibly purchase additional items beyond the $5 meal.
The profitability of this offer will hinge on various factors including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, indicated that while the meal deal has promotional value, it may not be significantly profitable.
It’s important to note that around 95% of McDonald’s locations are franchise-owned. This means that individual franchisees set their own prices and bear their own expenses, such as rent and insurance. In May, Joe Erlinger, the president of McDonald’s USA, mentioned that franchisees often implement promotional offers like the $5 meal deal to offset overhead costs.
However, Spiegel has described the meal deal more as a “loss leader,” intended to attract and retain customers rather than generate profit. She pointed out that once additional expenses related to labor, packaging, and marketing are included, franchise owners often find that these costs erode any potential profits from the deal.