McDonald’s is anticipating a modest profit from its $5 meal deal, although the profit margins are expected to be limited. According to restaurant analyst Mark Kalinowski, the profit margin on this combo meal could range from 1% to 5%, equating to roughly $0.05 to $0.25 per bundle sold.
Kalinowski notes that this promotional deal aims to attract consumers facing inflationary pressures back to the restaurant, with the hope that once patrons are inside, they will purchase more than just the $5 meal.
However, the actual profitability of the deal hinges on various factors such as the costs of ingredients, labor, and other overhead expenses. According to Arlene Spiegel, president of Arlene Spiegel & Associates, the $5 meal deal is “more promotional than profitable.”
Despite potentially enticing customers back, franchisees may not benefit significantly from these promotions. Approximately 95% of McDonald’s restaurants are franchise-owned, meaning that franchisees set their own prices and manage various additional costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, the president of McDonald’s U.S., mentioned that franchisees often use promotional offers like the $5 meal deal to offset their overhead expenses. However, Spiegel explained that this deal serves more as a “loss leader” intended to attract and retain customers. Once all expenses related to labor, packaging, condiments, delivery, and marketing are considered, franchise owners may find that there is little to no profit left from the promotion.