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 combo sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant introduced this deal to entice price-sensitive consumers grappling with inflation, aiming to encourage them to purchase more than just the $5 meal once inside the restaurant.
However, profitability from this offer hinges on various factors, including the cost of ingredients, labor, and operational expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, indicated that the $5 meal deal is “more promotional than profitable.”
Although the deal may draw customers back, it does not guarantee increased profits for franchise owners, who comprise about 95% of McDonald’s locations. These franchisees set their own prices and face additional costs such as rent, insurance, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, noted that franchisees often introduce promotional offers like the $5 meal deal to help offset overhead expenses. Nevertheless, Spiegel emphasized that the meal bundle is primarily a “loss leader” strategy aimed at attracting and retaining customers. After accounting for labor, packaging, condiments, delivery, and marketing costs, franchise owners often find that profits on the items in the deal are nearly eliminated.