McDonald’s is expected to see a modest profit from its new $5 meal deal, with profit margins anticipated to be between 1% and 5%, translating to about $0.05 to $0.25 for each meal sold, as noted by restaurant analyst Mark Kalinowski.
The fast-food giant aims to attract budget-conscious consumers who are feeling the impact of inflation. The strategy is to draw customers into the restaurant with the affordable meal deal, encouraging them to purchase additional items while there.
However, the actual profitability of the deal will be influenced by various factors including ingredient costs, labor expenses, and overall overhead. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, pointed out that the $5 meal deal is more about promotions than generating substantial profit.
As approximately 95% of McDonald’s locations are franchised, individual franchise owners set their own prices and manage various costs such as rent, insurance, and taxes. U.S. president Joe Erlinger noted that franchisees often pursue promotional pricing to combat overhead expenses.
Despite the promotional intent, Spiegel emphasized that the deal functions as a “loss leader” aimed at drawing in customers, but when factoring in labor, packaging, condiments, delivery, and marketing costs, it can effectively eliminate any potential profit from the deal.