McDonald’s Keeps $5 Meal, but Does It Make Money?

By Douglas A. McIntyre Updated Sep 16, 7:08AM EDT · Published Sep 14, 8:31AM EDT

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McDonald’s Keeps $5 Meal, but Does It Make Money? — © RyanStudiesBirds / Wikimedia Commons

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The McDonald’s Corp. (NYSE: MCD | MCD Price Prediction) $5 meal was supposed to bring back the “value-minded” customer. Has it worked?
Also: Dividend legends to hold forever.

The McDonald’s Corp. (NYSE: MCD) $5 meal was supposed to bring back the “value-minded” customer, which was one foundation of its success. It has not been entirely clear if that worked. It has certainly not been very profitable. One analyst said McDonald’s only makes about $0.10 on each one. While people outside McDonald’s can’t measure its success precisely, the program has brought in enough business to be extended until the end of the year.

The $5 meal includes a McDouble or McHenry sandwich, small fries, four pieces of Chicken McNuggets, and a small soft drink. The price is low enough; McDonald’s management has reasoned that people who cannot afford much more for a meal will view McDonald’s as it has been for years–the only place they can get food on a rock-bottom budget.

McDonald’s needs to jump-start growth. In the most recent quarter, its revenue was $6.5 billion, nearly the same as in the year before. Comparable store sales were close to flat. EPS dropped 12% to $2.80. McDonald’s CEO spoke extensively about capturing diners in a world where inflation robbed lower-income people of their buying power. “We are confident that Accelerating the Arches is the right playbook for our business and as consumers are more discriminating with their spend, we are focused on the outstanding execution of delivering reliable, everyday value and accelerating strategic growth drivers like chicken and loyalty,” Chairperson and CEO Chris Kempczinski said when earnings were released.

Skeptical investors must decide if it is worth adding back past meals if there is no profit.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.