McDonald’s $5 Meal Deal: A Strategy or a Money Trap?

McDonald’s may only see modest profits from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal combo sold, as indicated by restaurant analyst Mark Kalinowski.

The promotional offer is aimed at attracting consumers who are feeling the effects of inflation, with the hope that once customers enter the restaurant, they will purchase additional items beyond the $5 deal.

However, the potential for profitability is influenced by various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, noted that the $5 meal deal is more of a promotional strategy rather than a significant profit-generating move.

Spiegel explained that while the meal may draw customers back into the restaurants, the profits may not translate to franchise owners. About 95% of McDonald’s locations are franchise-owned, meaning that individual owners determine their pricing and bear additional costs such as rent, insurance, permits, and taxes.

In a statement earlier this year, McDonald’s U.S. president Joe Erlinger mentioned that franchisees often attempt to reduce these overhead expenses by offering promotions like the $5 meal deal. Despite this, Spiegel pointed out that the bundle primarily serves as a “loss leader” aimed at attracting and retaining customers.

Once various costs, including labor, packaging, condiments, delivery, and marketing, are taken into account, Spiegel stated that franchise owners may end up erasing any potential profits from the deal.

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