Inside McDonald's push to have artificial intelligence price your Big Mac

NEW YORK — McDonald's is increasingly using artificial intelligence to guide menu prices across the U.S. and some global markets, a plan that aims to boost headquarters' profit but risks alienating customers and attracting antitrust scrutiny.

One pricing factor supercharged by AI: an estimate of how much each store's patrons are willing to pay.

The details of how that pricing system works, its extensive use of AI, the company's regulatory concerns and the tensions with its franchisees ​haven't been previously reported. For this story, Reuters reviewed screenshots of the company pricing engine taken in August and interviewed nine sources with first-hand knowledge of the burger chain's strategy.

McDonald's pricing engine uses machine-learning algorithms to continually analyze data from millions of daily transactions across McDonald's nearly 14,000 restaurants and generate what the company calls "the optimal price" at each location for each menu item, from Big Macs to discounted coffee for seniors.

The engine has widened existing price differences for the same product between restaurants, including from neighborhood to neighborhood within the same area, three franchisees told Reuters.

Screenshots of the interface franchisees use, reviewed by Reuters, show messages including: "Your restaurant is showing MEDIUM SENSITIVITY to ‌Price" based in part on "customer willingness to pay in your area." The platform also contains public price information pulled from online menus of nearby restaurants of competitors including Wendy's and Burger King. Those chains said they do not use AI in pricing decisions.

A Reuters check of prices in September on the McDonald's mobile app showed price differences. For example, a company-run store in Fresno, California sells a Big Mac for $5.69, but another company-run restaurant two miles away sells the same sandwich for $6.89, a 21% premium. Reuters ⁠could not confirm if the price difference is the result of the price engine's recommendations or other factors.

McDonald's says its franchisees are free to set their own prices, but five store ​owners told Reuters the company pressured them to use the AI-pricing tools. A franchisee document from June reviewed by Reuters shows McDonald's records franchisees' deviations from the recommendations in detail.

In ⁠January, McDonald's started requiring franchisees to be "constructively engaging with McDonald's approved Pricing Consultant and Tools" as part of its new business standards, according to an internal communication sent to franchisees and reviewed by Reuters.

McDonald's said in a statement costs and other factors vary across its stores, and that restaurants even a few miles apart can belong to distinct markets.

Its 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," McDonald's said. The company also described Reuters reporting as "speculative and uninformed" claims that "attempt to recast a standard business practice as something controversial."

Other fast food companies are turning to AI to help with pricing and other operations, including Yum Brands, the world's largest restaurant company by location count, which ⁠owns the KFC and Taco Bell brands. Yum did not immediately respond to a request for comment.

In a meeting with investors on Wednesday, McDonald's said its "industry-leading" pricing engine was important to a larger corporate bet on affordability, and that franchisees see the ⁠need for inexpensive menu items to lure low-income consumers.

McDonald's deeper push into AI pricing has potential regulatory and reputational risks.

Other consumer companies have faced swift public backlash after disclosures that they may use algorithms to price the same product differently.

Wendy's endured a wave of criticism over the potential for unfair price fluctuations in 2024 after its CEO announced plans to test "dynamic pricing." Wendy's said its comments were misconstrued and told Reuters it did not implement the system. Instacart in December ended its use of AI tools that showed different grocery prices to different shoppers in a limited test, after a study disclosing the practice sparked criticism from consumers and lawmakers. Instacart said it will never use personal information to determine item prices.

"It's in the interest of the company to know where there's (customer) demand and to get that feedback in real time," said Brooklyn resident Diane Bezucha. But if that technology is used to raise prices simply because of more demand, "that doesn't really help me as a customer."

As the use of AI becomes more widely adopted, U.S. courts and regulators are scrutinizing whether certain algorithmic pricing practices can facilitate illegal coordination between competitors – which franchisees are sometimes considered.

McDonald's cautions that franchisees accessing its pricing engine portal risk scrutiny related to antitrust prohibitions because its restaurant owners "may be competitors," according to screenshots of the legal terms for the portal Reuters reviewed in August.

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