McDonald’s is poised to generate a modest profit from its new $5 meal deal, with profit margins estimated between 1% to 5%, translating to approximately $0.05 to $0.25 per meal combo, as noted by restaurant analyst Mark Kalinowski. This initiative aims to attract consumers who have been impacted by rising inflation, encouraging them to visit the restaurant and potentially purchase more than just the $5 deal.
However, the actual profitability of this meal deal hinges on various factors, including the costs of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, described the deal as “more promotional than profitable.”
While the $5 meal deal may entice customers back into McDonald’s, franchisees may not benefit from increased profits. Approximately 95% of McDonald’s locations are franchised, meaning owners set their own pricing and deal with additional costs such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchisees often implement promotional offers like the $5 meal deal to counterbalance their overhead. Nonetheless, Spiegel emphasized that the deal acts more as a “loss leader” to attract and retain customers. When accounting for labor, packaging, condiments, delivery fees, and marketing expenses, she noted that franchise owners could ultimately eliminate any profit from the items offered in the deal.