McDonald’s is expected to generate a modest profit from its new $5 meal deal, with profit margins likely falling between 1% and 5%. This translates to earnings of approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski.
Kalinowski noted that the meal deal is part of McDonald’s strategy to attract customers who are feeling the pinch of inflation. The goal is to entice patrons to come into the store, with hopes that they will buy additional items beyond the $5 offering.
However, profit generation will also be influenced by various factors including ingredient costs, labor, and overall overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, indicated that the meal deal is actually “more promotional than profitable.”
Even if the deal successfully draws diners into restaurants, it might not translate to profits for franchise owners. Approximately 95% of McDonald’s outlets are franchisee-owned, meaning that these operators set their own prices and must manage their own expenses such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, president of McDonald’s U.S., explained that franchisees often use promotional offers like the $5 meal deal to offset their overhead costs. Nevertheless, Spiegel described the bundle as a “loss leader” aimed at attracting and re-attracting customers. After accounting for expenses related to labor, packaging, condiments, delivery, and marketing, she pointed out that franchise owners might end up eliminating any potential profit from the items included in the deal.