McDonald's AI Pricing Sparks Controversy Amid Profit Push
Fast-food giant uses AI to suggest prices based on customer willingness to pay, leading to varied costs for identical items.
McDonald's is increasingly employing artificial intelligence to guide menu pricing at its U.S. restaurants, a strategy aimed at maximizing profits but drawing scrutiny from regulators and consumers concerned about price discrimination.
The fast-food chain is encouraging franchisees to utilize an AI-powered algorithm designed to analyze data across its 14,000 locations and estimate "customer willingness to pay in your area," according to a Reuters report. This approach has resulted in noticeable price discrepancies for the same menu items at different stores, even within close proximity. For instance, a Big Mac in Fresno, California, was priced at $5.69 via the company's mobile app, while a location just two miles away charged $6.89 for the same burger.
Franchisees have indicated that the AI system contributes to widening price gaps for identical products across various restaurants in the same neighborhoods. The AI platform also incorporates public pricing data from competitors like Wendy's and Burger King, neither of whom has stated they use AI for pricing decisions.
A McDonald's spokesperson defended the practice, arguing that the AI algorithm does not set prices in real time but rather offers suggestions to franchisees, who retain the ultimate authority over pricing. "AI does not set the price of a Big Mac or any other menu item," the spokesperson stated. "The pricing portal is a tool, not a mandate, designed to provide restaurant-specific recommendations to help franchisees deliver value for customers and make informed business decisions."
However, some franchisees have reported pressure from the company to adopt the pricing tools. A franchisee document reportedly showed McDonald's tracking deviations from suggested prices. The issue gained public attention when a franchisee, George Michell, sued McDonald's, alleging that AI tools suggested a price of $18 for a Big Mac meal at his restaurant, leading to online backlash. McDonald's has disputed these claims in the lawsuit, which is ongoing.
In January, McDonald's updated its business standards, requiring franchisees to "be constructively engaging with McDonald’s approved Pricing Consultant and Tools." During a recent investor presentation, the company highlighted its "industry-leading" pricing algorithm as crucial for its affordability strategy, acknowledging a loss of lower-income and inflation-affected customers.
While McDonald's aims to use pricing to attract customers, franchisees face rising costs and are often hesitant to lower prices or introduce deals. CEO Chris Kempczinski has publicly commented on franchisees who have not implemented the company's "Under $3 Menu," linking their business performance to adherence to pricing strategies. He has also suggested that "pricing non-compliance in certain cases" could impact lease renewals or the opening of new locations.
AI-driven dynamic pricing has faced significant consumer backlash across various industries, with customers feeling exploited by fluctuating prices amidst high inflation. Wendy's had to backtrack on a plan to test dynamic pricing after customer outcry, and Instacart discontinued a program that showed different prices for the same items. The use of such AI pricing tools has also raised antitrust concerns, with regulators investigating potential illicit coordination between competitors. McDonald's has stated its commitment to complying with all applicable laws.