McDonald’s is navigating profitability challenges with its $5 meal deal, potentially yielding only modest profits. Restaurant analyst Mark Kalinowski estimates that the fast-food chain may achieve a profit margin of between 1% and 5%, translating to approximately $0.05 to $0.25 for each combo sold.
Kalinowski indicated that this promotional pricing strategy aims to attract consumers who are feeling the pinch of inflation, with the hope that once they visit the restaurant, they will purchase additional items beyond the $5 meal.
However, the overall profitability of the deal is influenced by various factors, including the costs of ingredients, labor, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.”
The majority of McDonald’s locations, about 95%, are franchise-owned, meaning that individual owners determine their pricing structures and must manage additional expenses like rent, insurance, permits, and taxes. In a statement from May, McDonald’s U.S. president Joe Erlinger noted that franchisees often implement promotional offers, such as the $5 deal, to offset overhead costs.
Nonetheless, Spiegel emphasized that the meal bundle primarily serves as a “loss leader” designed to attract customers. Once costs associated with labor, packaging, condiments, delivery, and marketing are taken into account, owners may find that these expenses effectively eliminate any profit from the items included in the meal deal.