McDonald’s may see a profit from its $5 meal deal, but the profit margin is expected to be modest. According to restaurant analyst Mark Kalinowski, the fast-food chain could achieve a profit margin between 1% and 5%, translating to approximately $0.05 to $0.25 for each bundle sold.
Kalinowski mentioned that this deal is a strategy for McDonald’s to attract consumers who are feeling the pressure of inflation. The goal is to entice customers into the restaurant, where they may purchase additional items beyond the $5 offer.
However, the profitability of this deal will rely on various factors, including ingredient costs, labor expenses, and overhead costs. Arlene Spiegel, president of Arlene Spiegel & Associates, stated that the $5 meal deal is “more promotional than profitable.”
Even if the promotion successfully brings diners back, it might not guarantee profits for franchisees. Approximately 95% of McDonald’s locations are franchisee-owned, meaning that these owners must set their own prices and manage additional costs, including rent, insurance, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees attempt to offset their overhead expenses by running promotions like the $5 meal deal. Nevertheless, Spiegel pointed out that this bundle is primarily a “loss leader” aimed at attracting and retaining customers.
After accounting for extra costs such as labor, packaging, condiments, delivery fees, and marketing, she noted that franchise owners often end up negating any potential profits from the deal.