McDonald’s is expected to see a modest profit from its $5 meal deal, with profit margins anticipated to range between 1% and 5%, translating to approximately $0.05 to $0.25 per combo sold, according to restaurant analyst Mark Kalinowski.
This meal deal is part of McDonald’s strategy to attract consumers feeling the pinch of inflation, aiming to encourage them to make additional purchases beyond the promotional offering.
However, the profitability of the $5 meal will depend on several factors, including ingredient costs, labor expenses, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, noted that the deal is more focused on promotion than actual profitability.
Although the meal deal may increase customer foot traffic, franchise owners may not benefit significantly from these sales as about 95% of McDonald’s locations are franchise-owned. This means that franchisees set their own pricing and are responsible for various additional costs, including rent, insurance, permits, and taxes.
In comments made in May, Joe Erlinger, McDonald’s U.S. president, mentioned that franchisees work to offset these overhead costs through promotional offers like the $5 meal. Nevertheless, Spiegel emphasized that the package serves as a “loss leader” aimed at attracting customers. After accounting for labor, packaging, condiments, delivery fees, and marketing expenses, she stated that franchise owners may effectively eliminate any profit from these items included in the deal.