McDonald’s is expected to earn a modest profit from its $5 meal deal, with profit margins projected to be between 1% and 5%, translating to approximately $0.05 to $0.25 per meal sold, according to restaurant analyst Mark Kalinowski. This initiative is seen as a strategy to attract inflation-weary customers, encouraging them to purchase more items once they are in the restaurant.
However, profitability will be influenced by various factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, indicated that the meal deal is “more promotional than profitable.”
It’s important to note that around 95% of McDonald’s locations are franchise-owned, meaning franchisees set their own prices and must manage costs such as rent, insurance, permits, and taxes. Joe Erlinger, President of McDonald’s U.S., mentioned in May that franchisees often utilize promotional offers, like the $5 meal deal, to help manage these overhead costs.
Despite the potential for increased foot traffic, Spiegel emphasized that the deal serves primarily as a “loss leader” aimed at attracting and retaining customers. After accounting for additional expenses including labor, packaging, condiments, delivery fees, and marketing, franchise owners may find that their profits are effectively eliminated on the items within the deal.