McDonald’s stands to earn a modest profit from its $5 meal deal, with profit margins projected between 1% and 5%, amounting to approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski.
According to Kalinowski, this meal deal is part of McDonald’s strategy to attract consumers who have been affected by inflation. The goal is to encourage them to enter the restaurants and potentially make additional purchases beyond just the $5 offering.
However, the profitability of this deal hinges on 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 promotional than profitable.”
Furthermore, even if this combo helps draw customers into the restaurant, it does not guarantee that franchise owners will share in the profits. Approximately 95% of McDonald’s locations are franchisee-owned, meaning that owners set their own prices and must cover extra expenses like rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., stated that franchisees often use promotional offers, such as the $5 meal deal, to manage overhead costs. Despite this, Spiegel emphasized that the deal acts mainly as a “loss leader to capture and re-capture guests.” Once additional costs related to labor, packaging, condiments, delivery, and marketing are considered, she indicated that owners could effectively eliminate any profits from the items in the deal.