McDonald’s is using an AI pricing engine to recommend what each of its nearly 14,000 restaurants should charge for every menu item, Reuters reported on Tuesday. The engine covers the US and some markets abroad. One factor the engine weighs is an estimate of how much each store’s customers are willing to pay.
Waylon Cunningham reported the investigation for Reuters. He reviewed screenshots of the pricing engine taken in August and interviewed nine people with first-hand knowledge of the chain’s strategy.
The engine uses machine-learning algorithms to analyse data from millions of daily transactions. It produces what McDonald’s calls “the optimal price” for each item at each location, from Big Macs to discounted coffee for seniors. McDonald’s has used some form of AI pricing tool since at least 2019, according to Reuters.
A Big Mac for $5.69, or $6.89
Three franchisees told Reuters the engine has widened price gaps between restaurants, even between neighbourhoods in the same area. The platform also pulls prices from the online menus of nearby Wendy’s and Burger King restaurants.
“Your restaurant is showing MEDIUM SENSITIVITY to Price,” reads one screenshot of the interface reviewed by Reuters.
Reuters checked prices on the McDonald’s app in September. A company-run store in Fresno, California, sold a Big Mac for $5.69. Another company-run restaurant two miles away charged $6.89, a 21% premium. Reuters could not confirm whether the engine caused the gap.
The engine is run by Tiger Analytics, two of its former employees told Reuters. McDonald’s set its rules, they said, such as excluding ice creams and drinks from summer price rises. Tiger Analytics declined to comment.
McDonald’s says franchisees are free to set their own prices. Five store owners told Reuters the company pressured them to use the AI tools. A June franchisee document shows McDonald’s records in detail when owners deviate from its recommendations, Reuters reported.
Since January, McDonald’s business standards have required franchisees to be “constructively engaging with McDonald’s approved Pricing Consultant and Tools”. In August, chief executive Chris Kempczinski told investors that “pricing non-compliance in certain cases is part of those conversations” when the company reviews franchisees.
“You don’t really have much of a choice anymore,” Karen King, a former franchisee who retired last summer, told Reuters.
The portal’s terms warn that owners “may be competitors of each other” and must comply with antitrust and competition laws. William Kovacic, a former Federal Trade Commission commissioner, called that language “an acknowledgment there’s a potential problem”. McDonald’s said it takes antitrust compliance seriously.
“A tool, not a mandate, designed to provide restaurant-specific recommendations to help franchisees deliver value for customers and make informed business decisions,” McDonald’s said of the portal.
The company called the Reuters reporting “speculative and uninformed”. On Monday, Walmart’s chief executive ruled out personalised pricing in a letter to customers. Airlines are also using AI for dynamic pricing. McDonald’s is separately testing an AI voice at its drive-thrus.