McDonald’s $5 Meal Deal: Bargain or Business Blunder?

McDonald’s is projected to have a minimal profit from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to approximately $0.05 to $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.

This promotional offer is an effort by McDonald’s to entice price-sensitive customers back into their restaurants, with hopes that after entering, they will purchase more than just the discounted meal. However, the actual profitability of the deal is contingent on various factors including the costs of ingredients, labor, and other overhead expenses.

Arlene Spiegel, president of Arlene Spiegel & Associates, pointed out that the $5 meal deal is more about promotion than generating profit. Even if the deal attracts diners, franchise owners may not benefit financially, as nearly 95% of McDonald’s locations are franchised. This means that franchisees set their own prices and bear additional costs, such as rent, insurance, permits, and taxes.

In May, Joe Erlinger, president of McDonald’s U.S., noted that franchise owners often attempt to offset these overhead costs by offering promotional deals like the $5 meal. However, Spiegel emphasized that this bundle functions primarily as a “loss leader” to attract and retain customers. Once all costs, including labor, packaging, condiments, delivery, and marketing, are taken into account, she stated that owners might eliminate any profit associated with the items included in the meal deal.

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