McDonald’s recent introduction of a $5 meal deal may yield only modest profits for the fast food giant. According to restaurant analyst Mark Kalinowski, the profitability of this combo meal is projected to range between 1% to 5%, translating to earnings of approximately $0.05 to $0.25 for each bundle sold. This initiative aims to attract cost-conscious consumers who are feeling the pinch of inflation, with hopes that once they enter the restaurant, they will purchase additional items.
However, the actual profitability of the meal deal hinges on various factors, such as ingredient costs, labor, and operating expenses. Arlene Spiegel, the president of Arlene Spiegel & Associates, underscores that the $5 meal deal functions more as a promotional strategy than a profitable venture.
She notes that the vast majority of McDonald’s locations—around 95%—are privately owned franchises, which means each franchisee is responsible for setting prices and managing their own expenses, including rent, insurance, and other overheads. McDonald’s U.S. president Joe Erlinger previously stated that franchisees often implement promotional deals to help manage these costs.
Spiegel emphasizes that while the meal deal may bring customers through the door, it is considered a “loss leader,” designed primarily to attract and retain guests rather than to generate significant profit. When all related costs, such as labor, packaging, and marketing, are accounted for, the deal may leave franchisees with little to no profit margin.
Overall, while the $5 meal deal appears to be a strategic move to boost foot traffic during tough economic times, its success in generating profit for the corporation or its franchisees remains uncertain.
The hope is that this approach will better engage customers and encourage them to explore more menu options, contributing to an overall increase in sales. As the fast food industry continues to navigate inflationary pressures, innovative promotions may prove essential in maintaining customer loyalty.