McDonald's Expands AI Pricing Tool Despite Franchisee Tensions and Scrutiny
McDonald's is increasingly using artificial intelligence to set menu prices across the US, raising concerns among franchisees and regulators regarding algorithmic pricing.
McDonald's is increasingly relying on artificial intelligence to guide menu pricing across the United States and other global markets. The initiative, designed to boost corporate headquarters profits, carries risks of alienating customers and drawing antitrust scrutiny, according to an investigation published by Reuters.
AI-Powered Pricing Engine
Details on how the pricing system operates, its extensive use of AI, the company's regulatory concerns, and tensions with franchisees are being revealed for the public. The investigation examined screenshots of the company's "pricing engine" and included interviews with nine sources with firsthand knowledge of the burger chain's strategy.
A key factor amplified by artificial intelligence is the ability to gauge how much customers at any specific location are willing to pay. McDonald's pricing engine uses machine learning algorithms that continuously analyze data from millions of daily transactions across approximately 14,000 company restaurants. The system generates what the chain calls the "optimal price" at each branch for every menu item.
Price Gaps Between Neighborhoods
Three franchisees told Reuters that the engine has widened existing price gaps for the same product between restaurants, and even between neighboring blocks in the same area. Screenshots of the system designed for franchisees display notifications such as: "Your restaurant shows medium price sensitivity," based in part on "customers' willingness to pay in your area."
"You no longer really have a choice regarding pricing," said Karen King, a former franchise owner who recently retired.
Regulatory Scrutiny and Franchisee Tensions
The push for dynamic and conservative pricing following inflation has created friction with franchisees dealing with soaring labor, rent, and other costs that have jumped by an estimated 36% since 2019. McDonald's rejected the findings in the investigation, stating the report was "speculative and unfounded" and aimed to frame standard business practice as controversial.
