McDonald’s is launching a $5 meal deal that is expected to generate a modest profit margin, estimated to be between 1% and 5%. According to restaurant analyst Mark Kalinowski, this translates to a profit of roughly $0.05 to $0.25 for each combo sold. The initiative aims to attract consumers who are feeling the pinch of inflation and encourage them to purchase additional items during their visit.
However, the profitability of this deal will rely heavily on a combination of factors, including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, suggests that while the meal deal aims to boost customer engagement, it is more of a promotional tactic than a significant profit generator.
The majority of McDonald’s outlets are franchise-owned (approximately 95%), meaning individual franchisees set their own prices and shoulder various costs such as rent, insurance, and taxes. During a statement in May, McDonald’s U.S. president Joe Erlinger highlighted how franchisees often use promotions like the $5 meal deal to offset operational expenses.
Spiegel emphasizes that once expenses related to labor, packaging, and marketing are considered, franchisees could potentially struggle to see a profit from this deal, effectively turning it into a “loss leader” strategy designed to attract and retain customers.
In summary, while McDonald’s new $5 meal deal may not yield substantial profits, it reflects the company’s effort to adapt to economic challenges and consumer demands. The strategy also indicates a shift towards prioritizing customer retention and experience, providing an opportunity for franchisees to promote more profitable items once traffic increases. This demonstrates the resilience and adaptability of major brands in the face of economic pressure, which is hopeful for both the company and its customers.