Summary
- McDonald's employs machine-learning algorithms to set menu prices across approximately 14,000 locations, as reported by Reuters.
- The tool considers estimated customer price tolerance at each restaurant.
- Franchise owners indicate that this system has led to increased price disparities among nearby establishments, and McDonald's monitors these variances.
McDonald's has implemented machine-learning technology to determine menu pricing, utilizing an assessment of how much customers at each specific location are willing to spend, according to a report from Reuters.
This system processes millions of transactions daily across nearly 14,000 restaurants, calculating what McDonald's refers to as the "optimal price" for each menu item at every site. Screenshots of the interface shown to franchisees indicate that the system provides insights regarding price sensitivity based on local customer willingness to pay.
The platform also analyzes competitors' menu prices, which are sourced from the online listings of nearby fast-food chains like Wendy's and Burger King. Both companies confirmed to Reuters that they do not utilize AI for their pricing strategies.
Franchise owners have noted that this pricing engine has created wider price gaps for identical products among restaurants, even within the same locality. For instance, a recent check by Reuters found a McDonald's location in Fresno, California, selling a Big Mac for $5.69, while another nearby location charged $6.89, reflecting a 21% price difference. It remains unclear if the pricing engine is responsible for this disparity.
The AI system is operated by Tiger Analytics, as revealed by two former employees of the firm, with McDonald's providing the operational guidelines and corporate objectives. These guidelines include focusing price increases on items that have not seen a rise in the last two years, while avoiding increases on ice cream and soft drinks during the summer months. Tiger Analytics declined to comment on the report.
Myriad: Which company will IPO next? Click to make your prediction.Although franchisees are officially responsible for setting their own prices, five owners expressed that they feel pressured to adhere to the recommendations provided by the company. A document from June indicates that McDonald's meticulously tracks any deviations from these recommendations. Since January, franchisees have been required to engage constructively with the company's designated pricing consultants and tools. CEO Chris Kempczinski mentioned to investors in August that instances of pricing non-compliance are considered during franchisee business evaluations.
The legal agreements associated with the pricing portal remind franchise owners that they might be competitors and must adhere to antitrust regulations.
Similar pricing systems have previously faced consumer backlash. In 2024, Wendy's came under scrutiny for allegedly planning to charge more during peak hours. The company clarified that those reports misinterpreted information regarding digital menu boards that would allow for variable pricing and discounts, affirming that it would not raise prices during busy customer periods. Additionally, Instacart discontinued a limited trial of AI-driven pricing that varied grocery prices for different shoppers following criticism in December.
McDonald's characterized the pricing portal as a "tool, not a mandate," aimed at offering tailored recommendations for individual restaurants, noting that costs can differ among stores located just a few miles apart. The company responded to Reuters by calling the report "speculative and uninformed," emphasizing its commitment to antitrust compliance.