McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins estimated to be between 1% and 5%, translating to approximately $0.05 to $0.25 per meal sold, according to restaurant analyst Mark Kalinowski.
The fast-food giant is introducing this deal as a strategy to attract consumers who are feeling the effects of inflation, hoping that once customers are drawn in, they will make additional purchases beyond the $5 offer.
However, the success of this initiative hinges on various cost factors, including ingredient prices, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, characterized the $5 meal deal as “more promotional than profitable.”
She noted that although the deal might entice more visitors to the restaurant, it doesn’t guarantee that franchise owners will benefit from increased profits. With about 95% of McDonald’s locations being franchise-owned, individual owners set their own pricing and shoulder various costs such as rent, insurance, permits, and taxes.
In a statement made in May, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees often use promotional offers like the $5 meal deal to offset these overhead costs. Nonetheless, Spiegel described the value meal as a “loss leader” aimed at attracting and retaining customers. She explained that when considering various expenses, including labor, packaging, condiments, delivery charges, and marketing, owners may effectively eliminate any potential profit from the offer.