McDonald’s is expected to generate a modest profit from its newly introduced $5 meal deal, with profit margins anticipated to be between 1% and 5%. Restaurant analyst Mark Kalinowski estimates this translates to between $0.05 and $0.25 earned for each meal sold.
The fast-food giant aims to attract customers who are feeling the pinch of inflation, hoping that once they are inside, they will purchase more than just the $5 meal. However, the profitability of this deal will be influenced by various factors including the costs of ingredients, labor, and other overhead expenses.
Consultant Arlene Spiegel explained that the $5 meal is primarily a promotional strategy rather than a significant profit generator. Although the deal may entice diners back to restaurants, it is unclear if franchise owners will benefit from the profits. About 95% of McDonald’s locations are franchise-owned, meaning franchisees set their own prices and have to manage costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, noted that franchise owners often implement promotional offers like the $5 meal deal to offset their overhead expenses. However, according to Spiegel, the deal functions more as a “loss leader” designed to attract and retain customers. When accounting for various costs such as labor, packaging, condiments, delivery, and marketing, franchise owners may find that they eliminate any profit from the items included in the deal.