McDonald’s $5 Meal Deal: Marketing Masterstroke or Profit Trap?

McDonald’s is encountering its first lawsuit linked to the E. coli outbreak associated with its Quarter Pounder.

The fast-food giant introduced a $5 meal deal, which is expected to yield a modest profit margin between 1% and 5%, translating to approximately $0.05 to $0.25 per meal sold, according to restaurant analyst Mark Kalinowski. This strategy aims to attract consumers affected by inflation back to their locations, with the hope that customers will purchase additional items beyond the $5 meal.

However, profit generation will be influenced by various factors, including the costs of ingredients, labor, and other operational expenses. Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, stated that the $5 meal deal is “more promotional than profitable.”

Even if the deal successfully drives foot traffic into the restaurants, franchise owners may not benefit from these profits. Approximately 95% of McDonald’s outlets are franchisee-owned, requiring owners to set their own prices and manage increasing costs like rent, insurance, and taxes.

In May, McDonald’s U.S. President Joe Erlinger acknowledged that franchisees attempt to offset their overhead by launching promotional offers such as the $5 deal. Nonetheless, Spiegel referred to this offering as a “loss leader,” intended primarily to attract and retain customers. She noted that once additional expenses related to labor, packaging, condiments, delivery, and marketing are considered, franchise owners often end up eliminating any profit from the meal deal.

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