McDonald’s is expected to generate a modest profit from its $5 meal deal, with profit margins estimated between 1% and 5%. This translates to approximately $0.05 to $0.25 for each combo sold, according to restaurant analyst Mark Kalinowski.
The fast food giant is introducing this deal as a strategy to attract cost-conscious consumers amidst rising inflation. The hope is that once customers are drawn in by the $5 offering, they will also make additional purchases.
However, the actual profitability of the meal deal should consider several other factors, including the costs of ingredients, labor, and overhead. Arlene Spiegel, president of Arlene Spiegel & Associates, remarked that the $5 meal deal is more about promotion than profit.
Despite the potential to increase foot traffic, the financial benefits may not directly benefit franchisees, as approximately 95% of McDonald’s locations are independently owned. Franchise owners set their own prices and bear various costs such as rent, insurance, permits, and taxes.
In a previous statement, Joe Erlinger, president of McDonald’s U.S., indicated that franchisees often run promotional campaigns like the $5 meal deal to offset these overhead expenses. Yet Spiegel pointed out that this bundle serves primarily as a “loss leader” designed to attract and retain customers. When taking into account the additional costs associated with labor, packaging, condiments, delivery, and marketing, many franchise owners may find that any profits from this deal are effectively eliminated.