McDonald’s $5 Meal Deal: Modest Profits Amid Strategic Promotion
McDonald’s is poised to see some profit from its newly launched $5 meal deal, but the margins are expected to be modest. According to restaurant analyst Mark Kalinowski, the fast-food chain’s profits from each bundle sold will likely range between 1% and 5%, translating to mere earnings of approximately $0.05 to $0.25 per sale.
This promotional pricing strategy is part of McDonald’s efforts to attract inflation-conscious consumers back into their restaurants. The goal is that while customers are enticed to take advantage of the $5 deal, they will also purchase additional items, ultimately boosting overall sales.
However, this profitability hinges on various factors, including the fluctuating costs of ingredients, labor, and other overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, notes that the deal is “more promotional than profitable.” Notably, the majority of McDonald’s outlets—about 95%—are franchise-owned. This means individual franchisees set their own prices and must contend with their own operating costs, such as rent, insurance, and taxes.
Despite the challenges, promotional deals like the $5 meal offer are often seen as necessary strategies to attract customers, as articulated by McDonald’s U.S. president Joe Erlinger. While it may initially seem like a loss leader, intended to draw guests back, it aims to secure long-term patronage for the franchise.
In light of these challenges, the $5 meal deal could be viewed as part of McDonald’s adaptability in a competitive market, creating opportunities to engage with consumers and potentially increase foot traffic in the future.
Summarizing the situation, while McDonald’s $5 meal deal might not yield significant profits upfront, it is a strategic initiative that could help the brand re-engage with consumers and pave the way for future sales growth.