McDonald's $5 meal deal is 'more promotional than profitable,' analysts say

McDonald’s could make a profit from its $5 meal deal — though it will only be a modest one.

The fast food chain is likely to see a profit margin on the combo that falls between 1% and 5%, which roughly comes out to $0.05 to $0.25 for every bundle sold, according to restaurant analyst Mark Kalinowski.

Kalinowski said the deal is one way McDonald’s hopes it can get inflation weary consumers back in the door, and once they’re in, to buy more than just the $5 offering.

But turning a profit will depend on additional factors, such as the cost of ingredients, labor, and overhead expenses.

That makes the McDonalds $5 meal deal “more promotional than profitable,” Arlene Spiegel, the president of consulting firm Arlene Spiegel & Associates, said.

Even if the combo can get diners back into the restaurant, it won’t necessarily mean franchisee will see those profits, Spiegel told Quartz in an email.

Roughly 95% of McDonald’s are franchisee owned, which means owners set their own prices and have to handle added costs, like rent, insurance, permits, and taxes.

In May, McDonald’s U.S. president Joe Erlinger said that franchisees try to mitigate those overhead costs by running promotional offers, such as the $5 meal deal.

But even so, the bundle is more of a “loss leader to capture and re-capture guests,” Spiegel said.

Once the additional costs of labor, packaging, condiments, delivery charges, and marketing are factored in, she said owners “basically wipe out any profit on any one or all of the items in the deal.”