McDonald’s is anticipating a modest profit from its new $5 meal deal, with projected profit margins ranging between 1% to 5%, which translates to earnings of approximately $0.05 to $0.25 per meal sold, according to restaurant analyst Mark Kalinowski.
This promotional initiative aims to attract consumers who are feeling the pinch of inflation, and McDonald’s hopes that once customers enter the restaurant, they will spend more than just the $5 offering.
However, the potential for profitability hinges on various factors such as the costs associated with ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
Moreover, it is important to note that about 95% of McDonald’s restaurants are franchise-owned. Franchisees have the autonomy to set their own prices, but they also face the burden of additional expenses such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchisees often use promotional offers like the $5 meal deal to manage these costs. However, Spiegel pointed out that the bundle primarily serves as a “loss leader aimed at attracting and retaining customers.” When factoring in costs for labor, packaging, condiments, delivery charges, and marketing, franchise owners may find that the deal does not yield significant profit on any of the items included.