McDonald’s is expected to see a modest profit from its $5 meal deal, with profit margins estimated to fall between 1% and 5%, translating to approximately $0.05 to $0.25 for each combo sold, according to analyst Mark Kalinowski.
The fast-food giant aims to attract budget-conscious consumers affected by inflation, hoping that once customers come in for the deal, they will also purchase additional items. However, the profitability of the $5 meal deal hinges on various factors, including ingredient costs, labor, and overhead expenses.
Arlene Spiegel, president of the consulting firm Arlene Spiegel & Associates, indicated that the meal deal is more about promotion than profit. While the deal may succeed in bringing customers back, it does not guarantee that franchisees will benefit from the sale.
Nearly 95% of McDonald’s locations are franchisee-owned, meaning that individual owners establish their own prices and are responsible for various expenses like rent and insurance. In May, McDonald’s U.S. president Joe Erlinger noted that franchisees often run promotional deals, including the $5 meal, to help mitigate increases in overhead costs.
Spiegel described the meal deal as more of a “loss leader,” aimed at attracting customers rather than generating significant profits. Once costs related to labor, packaging, condiments, delivery, and marketing are accounted for, many owners find that these expenses effectively eliminate any potential profit from the deal.