McDonald’s may see limited profits from its new $5 meal deal, with expectations of profit margins ranging between 1% and 5%, translating to approximately $0.05 to $0.25 per combo sold, according to restaurant analyst Mark Kalinowski.
This promotional offer is designed to attract inflation-weary consumers back into McDonald’s outlets, with the hopes that once inside, they will make additional purchases beyond the $5 meal. However, the potential for profitability hinges on various external factors, such as the cost of ingredients, labor, and operational expenses.
Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, characterized the meal deal as primarily promotional rather than a significant profit-maker. Although the combo might draw customers back, franchisees may not necessarily benefit financially from these promotions.
Around 95% of McDonald’s locations are franchisee operated, meaning that individual owners set their own pricing and are responsible for managing increased costs, including rent, insurance, permits, and taxes.
In May, McDonald’s U.S. president Joe Erlinger stated that franchisees often use promotional deals like the $5 meal to tackle their overhead costs. Nevertheless, according to Spiegel, the deal essentially serves as a “loss leader” aimed at attracting and retaining customers. She noted that when additional expenditures for labor, packaging, condiments, delivery, and marketing are included, franchise owners often absorb any potential profit from the items involved in the meal deal.