McDonald’s is aiming to attract cost-conscious customers with its $5 meal deal, but the fast-food chain’s profit margins from this offer are expected to be quite modest. According to restaurant analyst Mark Kalinowski, the profit margin on this combo meal is projected to be between 1% and 5%, translating to profits of just $0.05 to $0.25 per meal sold.
The $5 meal deal serves as a strategic move for McDonald’s, particularly as consumers grapple with rising inflation. The hope is that once customers come in for the affordable meal, they will be enticed to purchase additional items.
However, the potential for profit is complicated by variables such as ingredient costs, labor expenses, and overhead costs associated with running a restaurant. Arlene Spiegel, president of Arlene Spiegel & Associates, emphasized that the deal is “more promotional than profitable.” This means that while the meal deal can drive traffic to the restaurant, franchise owners may not see significant revenue increases.
Approximately 95% of McDonald’s locations are franchise-operated, meaning these owners determine their own pricing and must manage their own expenses, including rent, insurance, and other operational costs. Joe Erlinger, President of McDonald’s U.S., highlighted that franchisees often use promotional offers to help offset their overheads. Nevertheless, Spiegel cautioned that after accounting for various operational expenses related to the meal offerings, franchise owners may find their profits significantly diminished.
In summary, while McDonald’s $5 meal deal is a clever tactic to draw in customers, the associated costs may limit its profitability for franchise owners, making it more about brand loyalty and customer retention than immediate financial gain.
This strategic approach reflects the company’s ability to adapt in challenging economic times, emphasizing customer engagement over maximizing profits in the short term. The move could foster long-term relationships with consumers, which may prove beneficial as inflationary pressures stabilize in the future.