McDonald’s is expected to see a modest profit from its new $5 meal deal, with profit margins projected to range from 1% to 5%. This equates to between $0.05 and $0.25 for each meal sold, according to restaurant analyst Mark Kalinowski.
This popular offer is part of McDonald’s strategy to draw inflation-weary customers back to its restaurants, with hopes that once they are inside, they will make additional purchases beyond the $5 meal.
However, actual profitability will depend on various factors, including ingredient costs, labor expenses, and overall overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, commented that while the $5 meal deal is aimed at enticing customers, it is more promotional than profitable.
Moreover, almost 95% of McDonald’s outlets are franchise-owned, meaning that the franchisees set their own prices and bear added costs such as rent, insurance, permits, and taxes. In a statement from May, McDonald’s U.S. president Joe Erlinger noted that franchisees often run promotional deals to help offset these extra expenses.
Despite the attempt to lure customers back, Spiegel indicated that the meal deal acts more like a “loss leader” aimed at attracting and retaining guests. Once various costs including labor, packaging, condiments, delivery, and marketing are considered, franchise owners may end up eliminating any potential profit from the items included in the deal.