McDonald’s is anticipated to achieve a modest profit margin from its $5 meal deal, ranging from 1% to 5%, translating to approximately $0.05 to $0.25 for each combo sold. This initiative aims to attract cost-conscious consumers who are feeling the effects of inflation, encouraging them to return to the restaurant, where McDonald’s hopes they will make additional purchases.
Despite the strategy’s intent, several factors can impact profitability, including the cost of ingredients, labor, and overhead expenses. Arlene Spiegel, president of Arlene Spiegel & Associates, stated that the $5 meal deal is more about promotion than profit. Although it may draw customers back into the restaurant, franchisees may not see these profits directly, as approximately 95% of McDonald’s locations are franchise-owned. Franchise owners often set their own prices and must manage various costs like rent, insurance, permits, and taxes.
In a previous statement, Joe Erlinger, the U.S. president of McDonald’s, noted that franchisees seek to manage these overhead costs by offering promotions such as the $5 meal deal. However, the combination may act primarily as a “loss leader,” intended to lure customers back rather than generate significant profits. With additional expenses—such as labor, packaging, condiments, delivery charges, and marketing—many franchise owners may find it challenging to maintain profitability on promotional items.
In summary, while the $5 meal deal may serve as a strategic move to regain customer interest amidst rising inflation, its success will be contingent on balancing costs and attracting repeat business.
On a hopeful note, McDonald’s efforts reflect a broader trend of businesses responding to consumer needs and adjusting their strategies amidst economic challenges. By focusing on value and accessibility, the fast-food giant is not only aiming to sustain its customer base but also fostering a connection with patrons during difficult economic times.