McDonald’s Balances Lawsuit and $5 Meal Deal: Profitability or Promotion?

McDonald’s is navigating its first lawsuit related to the Quarter Pounder E. coli outbreak while also aiming to attract customers with a $5 meal deal that promises only a modest profit. Restaurant analyst Mark Kalinowski indicates that the profit margin on this combo meal is expected to range from 1% to 5%, translating to approximately $0.05 to $0.25 for each meal sold.

Kalinowski points out that this promotional strategy is designed to entice inflation-weary consumers back into their restaurants, with the hope that they will purchase additional items beyond the $5 deal. However, the potential profitability of this offer is contingent upon various factors including ingredient costs, labor expenses, and other overhead costs.

Arlene Spiegel, president of Arlene Spiegel & Associates, describes the $5 meal as “more promotional than profitable.” She notes that while attracting customers back to the restaurants is the goal, franchise owners—who operate about 95% of McDonald’s locations—set their own prices and contend with additional expenses such as rent, insurance, permits, and taxes.

In a statement from May, McDonald’s U.S. president Joe Erlinger acknowledged that franchisees often utilize promotional deals to help manage their overhead costs. However, Spiegel warns that these bundles often serve as “loss leaders,” primarily aimed at drawing customers in, rather than generating profits. She emphasizes that once factors like labor, packaging, condiments, delivery fees, and marketing are considered, franchise owners may find that they lose any profit on these promotional items.

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