McDonald’s is expected to achieve only modest profits from its recently launched $5 meal deal, which is likely to yield a profit margin of just 1% to 5%. This translates to earnings of approximately $0.05 to $0.25 for each meal bundle sold, according to analyst Mark Kalinowski.
The fast-food giant has introduced this offer as a strategic move to attract inflation-weary consumers and encourage them to purchase additional items beyond just the $5 deal. However, profitability will largely rely on fluctuating costs such as ingredients, labor, and overhead expenses.
Arlene Spiegel, president of Arlene Spiegel & Associates, describes the $5 meal deal as “more promotional than profitable.” She pointed out that while the promotion may effectively draw customers into the restaurant, it doesn’t guarantee that franchise owners will see corresponding profits, as about 95% of McDonald’s locations are franchisee-owned. Franchise owners have the autonomy to set prices, but they also have to manage costs such as rent and taxes, which can significantly impact their margins.
Despite the challenges, McDonald’s $5 meal deal serves as a strategic “loss leader” designed to attract and re-engage customers. It is important to note that as patrons return to McDonald’s locations, they may end up purchasing additional high-margin items, ultimately bolstering sales volume over time.
In summary, while McDonald’s $5 meal deal may not yield substantial profits immediately, it could serve as a valuable tool for increasing customer traffic and enhancing overall sales in the long run, especially in today’s challenging economic climate. This suggests a proactive approach from McDonald’s to adapt and stay relevant in a rapidly changing market.