McDonald’s is expected to achieve a modest profit from its $5 meal deal, with profit margins projected between 1% and 5%. This translates to approximately $0.05 to $0.25 earned for every bundle sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant is implementing this deal as a strategy to attract inflation-weary customers back into its restaurants, anticipating that once inside, they may purchase additional items beyond the $5 offer.
However, profitability may be influenced by various factors, including ingredient costs, labor expenses, and overhead. As Arlene Spiegel, president of Arlene Spiegel & Associates, noted, the $5 meal deal is designed to be “more promotional than profitable.”
While the deal aims to draw diners back in, it does not guarantee that franchisees will see increased profits. About 95% of McDonald’s restaurants are franchise-operated, meaning that franchise owners set their own prices and must manage various costs like rent, insurance, permits, and taxes.
In a statement from May, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees often implement promotional offers like the $5 meal deal to offset their overhead costs. Nevertheless, Spiegel pointed out that despite the promotion’s intention, it acts more as a “loss leader to capture and re-capture guests.” After considering the additional expenses related to labor, packaging, condiments, delivery, and marketing, franchise owners often find that the promotional deal diminishes potential profits on the items involved.