McDonald’s may generate some profit from its $5 meal deal, although it is expected to be fairly modest. According to restaurant analyst Mark Kalinowski, the fast-food giant’s profit margin on this combo is likely to range from 1% to 5%, translating to approximately $0.05 to $0.25 for each bundle sold.
Kalinowski noted that this promotion aims to attract inflation-weary consumers back into the restaurant, with the hope that they will purchase more than just the $5 deal while inside. However, the overall profitability of the combo is contingent on several factors, including the costs of ingredients, labor, and other expenses.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, commented that the $5 meal deal is “more promotional than profitable”. Even if the promotion attracts customers, franchisees may not see these profits directly. With around 95% of McDonald’s locations operated by franchisees, these owners set their own prices while also managing additional costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, President of McDonald’s U.S., indicated that franchisees attempt to offset their overhead costs through promotional offers like the $5 deal. Nonetheless, Spiegel referred to this as a “loss leader” strategy aimed at enticing and re-engaging customers. When considering costs related to labor, packaging, condiments, delivery fees, and marketing, she stated that franchisees “essentially erase any profit on any one or all of the items in the deal.”