McDonald’s has announced it will expand its $5 meal deal to nearly 93% of its U.S. locations. While the fast food giant hopes to attract budget-conscious customers with this offer, analysts suggest the deal is unlikely to be highly profitable.
Restaurant analyst Mark Kalinowski estimates that the profit margin for this deal will be modest, ranging from 1% to 5%.
This translates to a profit of approximately $0.05 to $0.25 per meal bundle sold. Kalinowski notes that McDonald’s aims to use this deal to lure back customers who are feeling the pinch of inflation, with the hope that once inside, they will purchase additional items.
However, achieving profitability will be influenced by various factors, including the costs of ingredients, labor, and overhead.
Arlene Spiegel, president of consulting firm Arlene Spiegel & Associates, describes the $5 meal deal as “more promotional than profitable.” She explains that while the deal may attract diners, it doesn’t guarantee that franchisees will benefit financially.
Approximately 95% of McDonald’s locations are franchised, meaning franchise owners set their own prices and bear the costs of rent, insurance, permits, and taxes. According to McDonald’s U.S. President Joe Erlinger, franchisees often use promotions like the $5 meal deal to manage these expenses.
Despite this, Spiegel argues that the meal deal functions primarily as a “loss leader” designed to draw in customers. Once factors such as labor, packaging, condiments, delivery charges, and marketing are considered, she believes the deal likely negates any potential profit for franchise owners.