McDonald’s is using artificial intelligence to set prices for its menu items, especially its mid-range burgers. This AI system assesses how much customers at each restaurant are willing to pay, leading to notable price differences across nearly 14,000 locations in the United States.
A recent investigation by Reuters revealed that the pricing models analyze millions of transactions daily to determine an “optimal price” for every menu item. As a result, the price of the same burger can vary significantly from one location to another, even if they are just a few miles apart.
For instance, in Fresno, California, one McDonald’s sold Big Macs for $5.69, while another location just two miles away charged $6.89, a 21 percent price hike. This price discrepancy between nearby stores could lead to customer confusion and dissatisfaction.
In a statement to Reuters, McDonald’s insisted that its AI pricing system is a “tool, not a mandate.” However, several franchise owners said they were pressured into using the AI pricing scheme. This pressure arises from corporate’s focus on maintaining revenue streams rather than solely prioritizing franchisee profit margins.
AI-driven dynamic pricing has become increasingly common in the food industry, though companies rarely disclose it because of the reputational risks it carries. Companies tend to shy away from discussing their use of such technology due to potential backlash from customers. A previous case involved Instacart, which tested an AI dynamic pricing tool that could lead to a family household spending an extra $1,200 per year on groceries. The program was quickly abandoned after public outcry.
Franchisees at McDonald’s have expressed worries not only about rising prices affecting customers but also about possible price decreases suggested by AI, which could jeopardize their financial well-being. Since McDonald’s corporate takes a cut from each restaurant’s total revenue, the company could profit even if franchise owners face losses. This situation has created tension between local business owners and corporate headquarters.
To ensure adherence to the pricing guidelines, McDonald’s sends AI pricing guidance to franchisees at least three times per year and monitors instances of “pricing non-compliance.” CEO Chris Kempczinski has indicated that compliance is considered when evaluating franchisee performance.
This AI pricing initiative aligns with objectives set by corporate, which collaborates with the AI firm Tiger Analytics. They regularly provide targets, including directives to raise prices on menu items that haven’t seen a price increase in at least two years. This structured pricing approach could impact franchisee relations and customer loyalty.
While McDonald’s presents its AI tool as an optional resource for pricing, the reality seems to lean toward enforced compliance, raising ethical questions about how fast food pricing is managed and perceived.
