McDonald’s may achieve a modest profit from its $5 meal deal, but the margins are expected to be quite low. Analyst Mark Kalinowski estimates that the profit margin for this offering will range from 1% to 5%, equating to approximately $0.05 to $0.25 per meal sold.
Kalinowski indicated that this promotion aims to attract consumers who are feeling the strain of inflation back into McDonald’s locations, ideally encouraging them to purchase more than just the discounted deal.
However, profitability will hinge on various factors, including ingredient costs, labor, and other overhead expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, remarked that the $5 meal deal is primarily a promotional tactic rather than a significant source of profit.
Additionally, franchisees, who own about 95% of McDonald’s locations, have the autonomy to set their prices and must manage various expenses such as rent, insurance, and taxes. In May, Joe Erlinger, U.S. president of McDonald’s, noted that franchisees utilize promotions like the $5 meal deal to help reduce overhead costs.
Despite the potential benefit of drawing customers back into the restaurants, experts suggest that the bundle acts more as a “loss leader” aimed at attracting and retaining customers. With the costs associated with labor, packaging, condiments, delivery, and marketing, franchise owners may find that their profits are significantly diminished, if not eliminated altogether, on these promotional items.