McDonald’s is expected to generate only a modest profit from its $5 meal deal, with profit margins ranging between 1% and 5%, amounting to approximately $0.05 to $0.25 for each combo sold, as per restaurant analyst Mark Kalinowski.
This meal deal is part of McDonald’s strategy to attract consumers who are feeling the strain of inflation, encouraging them to make additional purchases beyond the promotional offer. However, the ability to profit from the deal is influenced by various factors, including ingredient costs, labor expenses, and overall operational costs.
Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.” Despite the potential to draw customers back into the restaurant, it may not guarantee profits for franchise owners, who own about 95% of McDonald’s locations. These franchisees are responsible for setting their own prices and dealing with various expenses such as rent, insurance, permits, and taxes.
In May, McDonald’s U.S. president Joe Erlinger noted that franchisees implement promotional offers like the $5 meal deal to alleviate overhead costs. However, Spiegel pointed out that the deal primarily acts as a “loss leader” designed to attract and retain customers. When additional costs relating to labor, packaging, condiments, delivery, and marketing are considered, franchise owners often lose out on any profits from the items within the deal.