McDonald’s is likely to earn a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%, translating to approximately $0.05 to $0.25 per meal combo sold, according to restaurant analyst Mark Kalinowski.
Kalinowski suggests that this promotion aims to attract inflation-weary customers back to McDonald’s. The strategy relies on enticing customers to make additional purchases beyond the initial $5 offering.
However, the overall profitability of the deal is contingent on several factors, including ingredient costs, labor expenses, and general overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
She noted that while the deal may increase foot traffic in stores, franchise owners may not benefit directly from the profits. Approximately 95% of McDonald’s locations are franchisee-owned, allowing individual owners to set their own prices and manage various costs such as rent, insurance, and taxes.
In remarks from May, Joe Erlinger, president of McDonald’s U.S., pointed out that franchisees often implement promotional offers like the $5 meal deal to alleviate their overhead expenses. Nonetheless, Spiegel described this bundle as primarily a “loss leader” aimed at attracting and retaining customers.
After accounting for labor, packaging, condiments, delivery charges, and marketing expenses, Spiegel indicated that many franchise owners could effectively eliminate any potential profit from the deal.