McDonald’s is expected to earn a modest profit from its new $5 meal deal, with margins estimated between 1% and 5%, translating to gains of approximately $0.05 to $0.25 per sale, according to restaurant analyst Mark Kalinowski. This promotional offering is part of the company’s strategy to entice inflation-weary consumers back into their restaurants, with hopes that once inside, they will purchase additional items beyond the $5 deal.
However, the profitability of this meal deal will hinge on several factors, including the costs of ingredients, labor, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal is “more promotional than profitable.”
Despite the potential to attract more diners, franchisees may not see direct benefits from this offer, as about 95% of McDonald’s locations are franchise-owned. Owners have the autonomy to set their own prices and manage expenses such as rent, insurance, permits, and taxes. In May, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees often implement promotions like the $5 meal to alleviate these overhead costs.
Spiegel emphasized that the meal bundle acts more like a “loss leader” aimed at attracting and retaining customers. Once the extra costs associated with labor, packaging, condiments, delivery, and marketing are considered, franchise owners may find that any potential profit from the meal deal is largely erased.