McDonald’s may see a modest profit from its $5 meal deal, but analysts suggest the gains will be limited. According to restaurant analyst Mark Kalinowski, the fast-food chain’s profit margin on the combo is expected to be between 1% and 5%, translating to earnings of only $0.05 to $0.25 for each meal sold.
Kalinowski noted that this deal is McDonald’s strategy to attract consumers struggling with inflation, with the hope that once they enter the restaurant, they will make additional purchases beyond the $5 meal. However, the actual profitability of this offering is contingent on various factors, including ingredient costs, labor, and operating expenses.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, pointed out that the $5 meal deal is “more promotional than profitable.” She added that although it may draw customers back to the restaurants, franchisees might not reap the rewards. About 95% of McDonald’s locations are franchise-owned, meaning that those owners manage their own pricing and must deal with various overhead expenses like rent, insurance, permits, and taxes.
In May, McDonald’s U.S. president Joe Erlinger mentioned that franchisees often use promotional deals like the $5 meal to help manage overhead costs. However, Spiegel referred to the bundle as a “loss leader” designed to attract and retain customers. After accounting for expenses related to labor, packaging, condiments, delivery fees, and marketing, she indicated that many franchise owners might end up eliminating any potential profits from the items included in the deal.