McDonald’s may see a modest profit from its new $5 meal deal, but the margins will be quite small. Restaurant analyst Mark Kalinowski estimates that the fast-food chain’s profit margin on the combo will be between 1% and 5%, translating to about $0.05 to $0.25 per meal sold.
Kalinowski explained that this deal is part of McDonald’s strategy to attract inflation-weary consumers back into their restaurants, hoping that once customers arrive, they will make additional purchases beyond the $5 meal.
However, the actual profitability of the deal could be influenced by several factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, indicated that the $5 meal deal is “more promotional than profitable.”
Even if the deal successfully brings diners back into restaurants, franchise owners may not directly benefit from those increased sales. Approximately 95% of McDonald’s locations are franchise-owned, meaning that individual owners set their own prices and are responsible for various expenses such as rent, insurance, permits, and taxes.
In a statement from May, Joe Erlinger, president of McDonald’s U.S., noted that franchisees often use promotional offers like the $5 meal deal to help manage their overhead costs. However, Spiegel warned that the meal deal functions more like a “loss leader” aimed at attracting and retaining customers. With additional costs associated with labor, packaging, condiments, delivery, and marketing, franchise owners may ultimately find that their profits are significantly reduced, if not eliminated, by the expenses tied to the deal.