McDonald’s is facing its first lawsuit related to the E. coli outbreak linked to its Quarter Pounder. Despite this challenge, the fast-food giant is rolling out a $5 meal deal that is expected to yield only modest profits. According to restaurant analyst Mark Kalinowski, the profit margin for this combo will likely be between 1% to 5%, translating to around $0.05 to $0.25 per meal sold.
Kalinowski indicated that this strategy aims to attract inflation-weary customers back to its restaurants, with the hope that they will purchase additional items beyond the $5 deal. However, the potential for profit hinges on various factors, including ingredient costs, labor expenses, and overall overhead.
Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the $5 meal deal serves more as a promotional tool than a significant profit generator. Furthermore, it’s important to highlight that nearly 95% of McDonald’s locations are franchise-owned, meaning the franchisees determine their pricing and bear the brunt of added expenses such as rent and insurance.
In May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees often resort to promotional deals to manage their overhead costs. Nonetheless, Spiegel pointed out that the deal functions as a “loss leader” aimed at attracting customers. Once various costs including labor, packaging, condiments, delivery charges, and marketing are accounted for, the potential profits from each item in the deal can effectively vanish for the franchise owners.