McDonald’s is expected to achieve a profit from its $5 meal deal, although the profit margins will be modest, ranging from 1% to 5%. This means the fast food giant could make between $0.05 and $0.25 on each bundle sold, according to restaurant analyst Mark Kalinowski.
Kalinowski explained that the meal deal is a strategy by McDonald’s to attract consumers who are feeling the effects of inflation, enticing them back into the restaurants with the hope that they will purchase additional items beyond the $5 offer.
However, actual profitability will be influenced by various factors, such as the costs of ingredients, labor, and operational expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal deal is “more promotional than profitable.”
Even if the deal successfully brings customers into the restaurants, franchise owners may not see the benefits of those profits. Approximately 95% of McDonald’s locations are franchise-operated, meaning that individual owners set their own prices and face additional costs, including rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, stated that franchisees often use promotional offers like the $5 meal to manage their expenses. Nevertheless, Spiegel characterized the deal as more of a “loss leader” aimed at attracting and retaining customers.
When taking into account added costs such as labor, packaging, condiments, delivery fees, and marketing, Spiegel pointed out that the franchise owners could effectively eliminate any profit from the items included in the deal.