McDonald’s is set to generate modest profits from its $5 meal deal, with expected profit margins ranging between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
The fast-food chain is utilizing this deal to attract inflation-sensitive customers, hoping that once they visit the restaurant, they will purchase additional items beyond the $5 offering.
However, profitability hinges on several variables, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal deal is “more promotional than profitable.”
While the deal may entice customers back, franchise owners may not see corresponding profits. About 95% of McDonald’s locations are franchised, meaning that franchisees determine their own pricing while managing various additional costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees often implement promotional strategies like the $5 meal deal to offset overhead costs. However, Spiegel pointed out that the deal acts more as a “loss leader” to attract and retain customers. Once costs related to labor, packaging, condiments, and marketing are calculated, she stated that franchise owners effectively eliminate any potential profit from the items included in the deal.