Photo credit: McDonald’s
The system has reportedly recommended an $18 Big Mac meal to a Connecticut franchisee, a price that later became the subject of a lawsuit and widespread consumer backlash. Several franchisees also told Reuters that McDonald’s has pressured them to follow recommendations from its pricing tools, even though the company says restaurant owners remain free to set their own prices. In 2023, CEO Chris Kempczinski told investors that the company had developed tools to evaluate pricing at individual restaurants. That year, the tools reportedly recommended that Connecticut franchisee George Michell charge around $18 for a Big Mac meal at a restaurant located off a state turnpike. The recommendation became the subject of a lawsuit in which Michell alleged that McDonald’s tried to push him out of the franchise system for discriminatory reasons.
The fast-food giant is increasingly using artificial intelligence (AI) to recommend menu prices across US restaurants, according to a report by the news agency Reuters. The pricing system analyses millions of daily transactions and can recommend different prices for the same item at nearby restaurants. McDonald’s pricing engine uses machine-learning algorithms to analyse data from millions of daily transactions across nearly 14,000 restaurants. The system generates what McDonald’s calls “the optimal price” for individual menu items at each restaurant. It also considers factors including customer willingness to pay in a particular area and public pricing information from nearby competitors such as Wendy’s and Burger King. Screenshots reviewed by Reuters showed messages including: “Your restaurant is showing MEDIUM SENSITIVITY to Price” based partly on “customer willingness to pay in your area.” The report cited a check of McDonald’s mobile app prices in September found that a Big Mac cost $5.69 at one company-owned restaurant in Fresno, California, while another company-owned location two miles away charged $6.89. McDonald’s has disputed the lawsuit and said Michell repeatedly breached his franchise agreements. Although the $18 price sparked widespread outrage, a filing from Michell said the price “caused no loss of sales” at the restaurant. The case remains ongoing. McDonald’s says franchisees can set their own prices. However, five franchisees told the publication that they experienced pressure from the company to use the AI pricing recommendations. In January, McDonald’s began requiring franchisees to be “constructively engaging with McDonald’s approved Pricing Consultant and Tools” under its new business standards, according to an internal communication cited in the report. The company also tracks franchisees’ deviations from pricing recommendations. CEO Kempczinski said in August that “pricing non-compliance in certain cases is part of those conversations” during business reviews. Former franchisee Karen King said: “You don’t really have much of a choice anymore” about pricing.
McDonald’s is facing scrutiny over its AI pricing strategy. This includes estimating how much customers in a particular area may be willing to pay. The publication could not establish whether the difference came from the pricing engine. McDonald’s began developing proprietary restaurant-level pricing tools years ago.
The system has also raised questions around competition law because McDonald’s franchisees can operate restaurants that compete with one another. The pricing portal’s legal terms warn that restaurant owners “may be competitors of each other” and that “it is particularly important for all Users of the Tool to understand and comply fully with anti-trust and competition laws.” McDonald’s said the pricing portal is “a tool, not a mandate, designed to provide restaurant-specific recommendations ?to help franchisees deliver value for customers and make informed business decisions.” The company also described the report’s findings as “speculative and uninformed” claims that “attempt to recast a standard business practice as something controversial.” McDonald’s has used some form of AI pricing technology since at least 2019. its growing use is now drawing attention from franchisees, customers, and antitrust experts While the company says the system can improve affordability. You use AI every day. Now get your AI Quotient. Take the AIQ test.