McDonald’s may see only a modest profit from its new $5 meal deal, which is expected to yield a profit margin between 1% and 5%, translating to roughly $0.05 to $0.25 on each bundle sold, according to restaurant analyst Mark Kalinowski.
To attract customers feeling the pinch of inflation, McDonald’s introduced this deal in hopes that once patrons enter the restaurant, they will be tempted to order more than just the $5 meal. However, profitability will be influenced by various factors, including ingredient costs, labor, and overhead expenses.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, described the $5 meal deal as “more promotional than profitable.” She noted that while the combo might drive traffic back to the restaurants, it might not guarantee profits for franchise owners, who account for about 95% of McDonald’s locations. Franchisees control pricing and tackle additional expenses, including rent, insurance, permits, and taxes.
In statements made earlier this year, Joe Erlinger, McDonald’s U.S. president, explained that franchisees often mitigate overhead costs through promotional offers like the $5 meal. Despite this strategy, Spiegel referred to the bundle as a “loss leader” designed mainly to attract and retain customers. When considering labor, packaging, condiments, delivery, and marketing costs, she indicated that franchise owners may ultimately eliminate any profit associated with the items included in the deal.