McDonald’s has used artificial intelligence to dynamically price menu items in the US and some global markets, according to a report by Reuters. This involves finding the “optimal price” to match what the patrons of a particular business would be willing to pay.
This varies by location, and even stores in the same city can have different cost amounts for the same exact items, according to information reviewed by Reuters. This is basically flood pricing, like with ride-share platforms, but for hockey puck burgers that sat under a hot light.
Reuters got a look at the interface franchisees use to access this technology and it’s pretty creepy. Messages show things like “Your restaurant shows MEDIUM SENSITIVITY to price” based on “Customer willingness to pay in your area.” Cost differences in nearby places can be strong. Researchers found that a Bic Mac at a Fresno, California store cost $5.69, but the same burger cost $6.89 at another branch two miles down the road. That’s a difference of 21 percent.
McDonald’s says franchisees are free to set their own prices. This could be true in theory, but a handful of shop owners have said Reuters that the company is pushing them to use the new AI tools. A company document reviewed by the publication shows that McDonald’s monitors compliance with the platform, noting any deviations from the algorithm’s price recommendations.
In addition, the company began requiring franchisees to “engage constructively with McDonald’s approved pricing consultants and tools” as part of its new business standards. This is according to an internal communication sent to the franchisee. Company documents show that McDonald’s sends AI price guidance to franchisees at least three times a year.
Store owners also described phone calls with companies after being pulled from these recommendations. “You don’t really have a lot of choices anymore,” said former store owner Karen King. It is worth noting that McDonald’s companies hold a lot of power over franchisees, as it can decide whether they are allowed to renew their license or open new locations. McDonald’s CEO Chris Kempczinski recently told investors that “price non-compliance in certain cases is part of these conversations” regarding contract renewals.
The company acknowledges that using this dynamic pricing system could open franchisees to legal hurdles, all while the platform continues to grow. The terms of service of the price portal reportedly warns that the owners “may be competitors of each other” and “it is especially important for all users of the tool to understand and respect the antitrust and competition laws.” The document also reiterates that franchisees “are always free to determine the final price,” potentially freeing the company from any antitrust concerns.
The document also states that these shop owners are seeking independent legal advice. Former FCC Commissioner William Kovacic said Reuters that the language in the service agreement is “an acknowledgment that there is a potential problem” after recent review of pricing algorithms.
McDonald’s has decided Reuters’ Report as “speculative and uninformed”. The company says the pricing portal is “a tool, not a mandate, designed to provide restaurant-specific recommendations to help franchisees deliver value to customers and make informed business decisions.”
The company has been using a version of this technology since at least 2019, according to Reuters. In 2023, however, CEO Kempczinski boasted to investors that it had developed proprietary tools to evaluate prices at individual restaurants.
It wasn’t long before these tools caused a serious problem. They maximize for the price, at the expense of everything else. The platform suggested to a Connecticut franchisee that the location should charge $18 for a single Big Mac. This went viral and led to a lawsuit in which the store owner claimed that the brand tried to kick him out of the franchisee system for discriminatory reasons. That case is still ongoing.
Other franchisees have claimed that some version of these tools recommended large price increases during the pandemic and even after, as inflation continued to rise. There’s a reason why McDonald’s wants its franchisees to pay as much as possible for every single item on the menu. The company makes much of its money by taking a percentage of each store’s total revenue.
The public seems to tolerate this sort of thing when it comes to ride-sharing platforms, but not elsewhere. Wendy’s got into some hot water in 2024 when its CEO announced plans for “dynamic pricing.” This forced the company to say the comments were misinterpreted and now insists it does not use customer data for its pricing.
The same thing happened with Instacart, which tested a platform that showed different food prices to different shoppers depending on a number of algorithmically decided variables. The outcry was swift and now the company says it will never use personal information to determine item prices either. It also ended its use of AI pricing tools.
Walmart recently unveiled a plan to mandate digital price tags in stores, which seems like the perfect way to make dynamic pricing tailored to each consumer. Customers also rebelled at this notion, forcing CEO John Furner to promise not to use personal information to influence prices. “We don’t set different prices based on who you are or the time of day, and we won’t,” he wrote. “Whether you buy groceries or electronics on a hot afternoon or in a sudden rush for an item, there is never a reason for you to pay more.”
Despite pushback, some companies are still trying to get on the AI hype train. Yum Brands, which owns KFC and Taco Bell, has gone all-in on the technology. It’s developing AI platforms for almost everything, including a dynamic drive-thru menu that changes based on the car approaching the window.
As for McDonald’s, business has been down in recent months. The share value has fallen by 30 percent since February. CEO Kempczinski said this was due to low-income consumer traffic “almost double-digit down” over the past two years. In other words, nobody has money and this is something flood prices probably won’t fix.