McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to about $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This promotional offer is part of McDonald’s strategy to attract inflation-weary customers back into their restaurants, with hopes that once inside, they will purchase additional items beyond the $5 deal.
However, profitability hinges on several factors, including ingredient costs, labor, and other overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
Even if the promotion successfully draws customers to the restaurants, franchisees may not reap the benefits. Approximately 95% of McDonald’s locations are operated by franchisees, who are responsible for setting their own prices and covering additional costs such as rent, insurance, permits, and taxes.
In a statement made in May, Joe Erlinger, president of McDonald’s U.S. operations, explained that franchisees often turn to promotional offers like the $5 meal deal to help manage their overhead costs. Nonetheless, Spiegel noted that the bundle primarily serves as a “loss leader to capture and recapture guests.”
When factoring in the additional costs of labor, packaging, condiments, delivery, and marketing, Spiegel indicated that franchise owners could end up eliminating any potential profits from the deal.