Inside McDonald’s push to have AI price your Big Mac

McDonald’s is leveraging artificial intelligence to determine menu prices in the United States and select global markets. This move seeks to increase profits for the company but may provoke customer dissatisfaction and attract antitrust scrutiny. A significant factor in AI-driven pricing is an assessment of customers' willingness to pay at each individual store.

The specifics of the pricing system, the degree to which it relies on AI, the company's regulatory concerns, and tensions with franchisees are not publicly known. To uncover these details, Reuters examined screenshots of the McDonald’s pricing engine, taken in August, and interviewed nine sources with insider knowledge.

McDonald’s pricing engine employs machine-learning algorithms to examine data from millions of daily transactions across its 14,000-plus restaurants, generating what the company terms as "the optimal price" for each location and menu item. This system has expanded existing price differences for the same product between various restaurants, even within the same vicinity, according to three franchisees.

Screenshots of the franchisees' interface reveal messages such as "Your restaurant is showing MEDIUM SENSITIVITY to Price," based partly on "customer willingness to pay in your area."

Additionally, the platform contains publicly available price information from competitors, including Wendy’s and Burger King, though these chains claim they do not utilize AI in pricing decisions. A price check on the McDonald’s mobile app in September revealed discrepancies, such as a Big Mac priced at $5.69 at a company-run store in Fresno, California, and $6.89 at another McDonald’s restaurant situated two miles away.

McDonald’s maintains that franchisees are free to set their own prices but alleges that some have been pressured to utilize the AI pricing tools. A June document from a franchisee, reviewed by Reuters, documents deviations from the recommendations. In January, McDonald’s began mandating that franchisees engage with McDonald’s approved Pricing Consultant and Tools as part of its updated business standards.

The company asserts that its pricing portal is merely a tool offering restaurant-specific recommendations to help franchisees deliver value to customers and make informed business decisions. McDonald’s stated that costs and other factors vary across its stores, and even restaurants a few miles apart can belong to different markets. The company also dismissed Reuters' reporting as "speculative and uninformed" claims that "attempt to recast a standard business practice as something controversial."

Other fast-food giants, such as Yum Brands (which owns KFC and Taco Bell), are also incorporating AI into pricing and other operations. McDonald’s emphasized that its pricing engine is crucial to its larger initiative on affordability and that franchisees recognize the necessity for budget-friendly menu items to attract low-income customers. In a recent investor meeting, McDonald’s stated that the company's AI-driven pricing engine plays a vital role in this strategy.

However, the expansion of AI-driven pricing comes with potential regulatory and reputational risks. Other consumer companies have faced public backlash after disclosing algorithmic pricing practices. For instance, Wendy’s faced criticism for considering dynamic pricing in 2024, although it later denied implementing such a system. Similarly, Instacart halted its use of AI tools that displayed different grocery prices to different shoppers in a limited test, following backlash over the practice.

As AI pricing becomes more prevalent, U.S. courts and regulators are scrutinizing whether such practices can facilitate unlawful price coordination between competitors. McDonald’s warns that franchisees accessing its pricing engine portal risk scrutiny related to antitrust violations. In 2023, a McDonald’s CEO told investors that the company had developed proprietary tools to evaluate pricing at individual restaurants.

One such tool reportedly suggested to Connecticut franchisee George Michell that he charge around $18 for a Big Mac meal, according to a lawsuit alleging that McDonald’s aimed to force him out of the franchise for discriminatory reasons. McDonald’s has denied these allegations and stated that the price did not negatively impact the restaurant’s sales. The lawsuit is still ongoing.