McDonald’s is expecting to generate only a modest profit from its new $5 meal deal, with anticipated profit margins between 1% and 5%. This translates to a financial gain of approximately $0.05 to $0.25 for each meal bundle sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant hopes that this pricing strategy will entice consumers who are feeling the strain of inflation to visit their outlets more frequently. The aim is to encourage customers to purchase additional items beyond the $5 offering.
However, the profitability of the meal deal is dependent on several factors, including ingredient costs, labor expenses, and overhead. Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, remarked that the deal is more about promotion than profit.
It’s important to note that roughly 95% of McDonald’s locations are franchise-owned, meaning that franchisees set their own pricing and bear the burden of various costs like rent, insurance, and taxes. Joe Erlinger, president of McDonald’s U.S., acknowledged that franchisees often engage in promotions like the $5 meal deal to offset these expenses. However, Spiegel emphasized that with the additional financial obligations, many franchise owners ultimately see little to no profit from this deal, effectively making it a loss leader meant to attract and retain customers.
This approach could be seen as a strategic move by McDonald’s to maintain its market share and draw in customers during a challenging economic period. By focusing on affordability and value, McDonald’s aims not only to boost foot traffic but also to foster customer loyalty in a competitive fast-food landscape.
In summary, while McDonald’s $5 meal deal may not yield substantial profits, it represents a calculated effort to attract consumers and reinforce their presence in the market. This could potentially lead to long-term benefits as satisfied customers return for more.