McDonald’s is poised to earn a modest profit from its $5 meal deal, but the margin is expected to be slim. Analyst Mark Kalinowski estimates that the profit margin for the combo will range between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold.
This pricing strategy aims to attract consumers who are feeling the pinch of inflation, encouraging them to come back to the restaurant and likely purchase additional items beyond the $5 meal. However, the overall profitability remains contingent on various factors, including ingredient costs, labor expenses, and overhead costs.
Arlene Spiegel, president of Arlene Spiegel & Associates, remarked that the $5 meal deal is “more promotional than profitable.” She emphasized that while the deal might bring diners back to McDonald’s locations, franchise owners may not necessarily see a financial benefit.
As around 95% of McDonald’s locations are franchisee-owned, these owners establish their own pricing and grapple with various expenses such as rent, insurance, permits, and taxes. In May, Joe Erlinger, president of McDonald’s U.S., noted that franchisees often use promotional offers like the $5 meal deal to help offset these overhead costs.
Despite its appeal, the meal deal is primarily seen as a “loss leader designed to capture and recapture guests,” according to Spiegel. After accounting for labor, packaging, condiments, delivery charges, and marketing expenses, she pointed out that owners could effectively eliminate any profit from the items included in the promotion.