McDonald’s is expected to see a modest profit from its new $5 meal deal, with margins likely ranging from 1% to 5%. This translates to earnings of about $0.05 to $0.25 per meal bundle, as noted by restaurant analyst Mark Kalinowski.
The fast-food giant is implementing this deal as a strategy to attract consumers who are feeling the pinch of inflation, aiming to encourage them to purchase more items once they are inside the restaurant. However, profitability will hinge on several factors including ingredient costs, labor, and overhead expenses.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, described the $5 meal deal as being “more promotional than profitable.” Although it may draw customers back to the restaurant, franchisees may not directly benefit from this promotion. Currently, around 95% of McDonald’s locations are franchise-owned, meaning each owner determines their pricing and must manage their own financial burdens such as rent, insurance, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees often use promotional offers like the $5 meal deal to offset these overhead costs. Nonetheless, Spiegel emphasized that this offering primarily serves as a “loss leader” aimed at attracting and retaining customers. With considerations for additional expenses such as labor, packaging, condiments, delivery charges, and marketing, franchise owners often find that their profits on these deals are significantly diminished.