In today’s economic climate, McDonald’s $5 Meal Deal stands out as a beacon of affordability. But with tight margins in the fast-food industry, one can’t help but wonder – how does McDonald’s manage to be profitable with this budget-friendly option? In this article, restaurant industry experts share what they think about the strategy behind McDonald’s $5 Meal Deal, revealing the unusual profit margins that make it beneficial for both McDonald’s and its value-seeking customers.
McDonald’s $5 Meal Deal Profit Margins
When McDonald’s first announced its $5 Meal Deal in May 2024, some of the company’s franchisees expressed their worries that the markdowns brought by the $5 Meal Deal would not yield enough profits to sustain their businesses long-term.
“There simply is not enough profit to discount 30% for this model to be sustainable,” the National Owners Association wrote in a letter that month. “It necessitates a financial contribution by McDonald’s.”
While it’s unclear whether McDonald’s eventually agreed to a financial contribution to help its franchisees run the limited-time $5 Meal Deal promotion – which includes a McDouble cheeseburger or McChicken sandwich, a four-piece order of Chicken McNuggets, a small order of French fries, and a small soft drink – veteran fast-food industry analyst Mark Kalinowski told MarketWatch that there’s a 1% to 5% profit margin on the meal deal, which translates into anywhere from $.05 to $.25 per meal.
Kalinowski pointed out that this figure is lower than the regular profit margin on a McDonald’s meal, which he estimated at between 5% and 10%. Despite the huge difference in profit margins, Kalinowski said the $5 Meal Deal comes with the added benefit of getting customers back in the door and frequenting the chain’s outlets again – something the fast-food giant hopes will continue even after the promotion concluded.
Kalinowski also acknowledged the possibility that some returning customers will order other menu items in addition to the $5 Meal Deal once they’re in the door. “They’re hoping you bring your buddy, who’s going to order that Double Quarter Pounder with Cheese meal,” explained Kalinowski.
How McDonald’s makes the $5 Meal Deal work
Industry experts said bundling food items together makes McDonald’s $5 Meal Deal work.
According to Kalinowski, the profit margin on sandwiches tends to not be so great. For instance, a burger or chicken sandwich might have a food cost of 40%. That means the ingredients in a $5 burger cost the operator $2.
The profit margins, on the other hand, are better on French fries and soft drinks. According to Joey Campanaro, a New York City restaurateur who owns Little Owl, a popular Mediterranean-themed establishment, fries can have a food cost as low as 5%. So, McDonald’s managed to make the $5 Meal Deal work by bundling items with different profit margins together.
While McDonald’s definitely earns profit from the deal, Arlene Spiegel, a New York City hospitality consultant, wanted everyone to know that the promotion isn’t a sales bonanza for franchisees. In addition to the rising cost of ingredients, operators have expenses for labor, rent, insurance and other things. She even noted that the costs of condiments, napkins and straws weigh especially heavily when margins are this tight. Because of this, Spiegel said the $5 Meal Deal is “more promotional than profitable.”