McDonald’s is expected to generate a modest profit from its new $5 meal deal, with profit margins estimated between 1% and 5%. This translates to an earning of approximately $0.05 to $0.25 per bundle sold, according to restaurant analyst Mark Kalinowski.
Kalinowski noted that the $5 deal is a strategy to attract customers who are feeling the pinch of inflation, with the hope that once they enter the restaurant, they may purchase additional items.
However, the profitability of this deal will also hinge on various factors including ingredient costs, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
Spiegel emphasized that even if the meal deal succeeds in drawing customers, it may not lead to profits for franchisees. Approximately 95% of McDonald’s locations are franchise-owned, which means individual owners set their own pricing and must manage various expenses such as rent, insurance, permits, and taxes.
In May, Joe Erlinger, McDonald’s U.S. president, indicated that franchise owners attempt to offset overhead costs by launching promotional offers like the $5 meal deal. Nevertheless, Spiegel referred to the deal as a “loss leader,” aimed at attracting customers rather than generating significant profits.
After accounting for labor, packaging, condiments, delivery charges, and marketing costs, Spiegel stated that franchise owners effectively eliminate any potential profit from the items included in the deal.