McDonald’s is navigating challenges with a new $5 meal deal, which may yield only a small profit margin. According to restaurant analyst Mark Kalinowski, the fast-food giant is expected to see profit margins ranging from 1% to 5%, translating to profits of about $0.05 to $0.25 per meal sold.
The $5 meal initiative is aimed at attracting cost-conscious consumers during inflationary times, with hopes that customers will purchase additional items once they enter the restaurant. However, the potential for profitability is contingent on various factors, including ingredient prices, labor costs, and overall overhead.
Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the meal deal is primarily promotional rather than a significant profit generator. She pointed out that approximately 95% of McDonald’s locations are operated by franchisees who independently manage pricing and must cover various expenses, such as rent and taxes.
In May, Joe Erlinger, the president of McDonald’s U.S., indicated that franchisees utilize promotional offers, like the $5 meal deal, to manage overhead costs. Spiegel further explained that while the bundle can attract customers, once labor, packaging, condiments, delivery, and marketing expenses are considered, franchise owners may find that they effectively lose any potential profit from the deal.