McDonald’s may generate a modest profit from its $5 meal deal, but the margins are expected to be slim. According to restaurant analyst Mark Kalinowski, the profit margin on this combo is likely to be between 1% and 5%, translating to about $0.05 to $0.25 for each bundle sold.
Kalinowski noted that this initiative aims to draw back customers who are feeling the effects of inflation, with hopes that once they are in the restaurant, they will be persuaded to purchase additional items beyond the $5 meal.
However, the overall profitability of the deal will hinge on several factors, including the costs associated with ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates consulting firm, characterized the $5 meal deal as “more promotional than profitable.”
She emphasized that even if the combo succeeds in attracting diners, franchise owners may not benefit financially. Approximately 95% of McDonald’s locations are franchised, meaning that individual owners set their prices and bear various costs such as rent, insurance, permits, and taxes.
In a statement from May, McDonald’s U.S. president Joe Erlinger indicated that franchisees often implement promotional offers like the $5 meal deal to help manage their overhead costs. Nevertheless, Spiegel underscored that the meal deal primarily acts as a “loss leader” intended to attract and retain customers. After accounting for costs related to labor, packaging, condiments, delivery, and marketing, she explained that franchise owners might effectively eliminate any potential profit from the items included in the deal.