McDonald’s is introducing a $5 meal deal that is expected to yield only a slight profit margin for the fast-food giant, estimated between 1% and 5%. According to restaurant analyst Mark Kalinowski, this translates to a profit of merely $0.05 to $0.25 for each combo sold. The strategy behind this deal is aimed at attracting consumers who are feeling the pinch of inflation, with the hope that once they enter the restaurant, they will purchase additional items beyond the $5 meal.
However, achieving profitability hinges on various factors, including the fluctuating costs of ingredients, labor, and operational expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, emphasizes that the $5 meal deal is more about promotion than actual profitability.
It’s important to note that approximately 95% of McDonald’s locations are franchise-owned, which means individual owners determine pricing and are faced with their own costs, such as rent, insurance, and taxes. While McDonald’s U.S. president Joe Erlinger acknowledges that franchisees use promotions like the $5 meal deal to offset overarching expenses, the ultimate profit remains uncertain. Spiegel warns that when additional costs for labor, packaging, and marketing are considered, franchise owners might not see significant earnings from this promotional deal.
In summary, while McDonald’s effort to engage customers through the $5 meal deal is commendable, the focus on promotional strategy over profitability highlights the challenges faced by both the corporation and its franchise owners in today’s economic landscape. Nonetheless, this initiative could boost foot traffic and reconnect diners with the brand, fostering a rebound in overall sales in the long run. This is a hopeful sign for both McDonald’s and its franchisees as they navigate the post-pandemic market environment.