You May Pay More For The Same Big Mac Than Someone Else As McDonald's Uses AI Pricing

The Big Mac you order today may not cost the same at another McDonald's just a few kilometres away. McDonald's is increasingly using AI to recommend prices for individual restaurants, including by estimating how much customers in a particular area may be willing to pay.

The system is already being used across the US and some global markets. And while McDonald's says franchisees can set their own prices, Reuters found that some franchisees have faced pressure to follow the recommendations.

Your Location Could Decide The Price

McDonald's pricing engine uses machine-learning algorithms to analyse data from millions of transactions across nearly 14,000 restaurants. It then recommends what the company calls the "optimal price" for individual menu items at each restaurant.

One factor is customer willingness to pay in that area.

The system also looks at public prices from nearby competitors, including Wendy's and Burger King. This means the price recommendation can differ from one McDonald's to another, even when the restaurants are relatively close to each other.

The Same Burger, Different Price

Reuters checked McDonald's prices on its mobile app in September and found a Big Mac selling for $5.69 at one company-run restaurant in Fresno, California, and $6.89 at another company-run restaurant two miles away. That is a $1.20 difference for the same burger.

But for now, there's no telling if  the AI pricing engine caused that specific difference in the pricing. Because prices can also vary because restaurants operate in different markets and have different costs.

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The AI System in place, however, is designed to recommend restaurant-specific prices.

McDonald's AI Knows Your Area

The AI does not operate without rules from McDonald's. According to two former employees of Tiger Analytics, the company that runs the pricing platform, McDonald's provides targets and guidelines for the system. These can include attracting more customers or increasing profits.

Reuters also reported examples of rules used by McDonald's, including focusing some increases on products that have not had a price increase for at least two years. It also avoided increasing prices of ice creams and drinks during summer.

While McDonald's says franchisees are free to reject these recommendations, five franchisees reported that they had faced pressure to use the AI pricing tools.

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In January, the company began requiring franchisees to be "constructively engaging with McDonald's approved Pricing Consultant and Tools" under its business standards. CEO Chris Kempczinski said in August that pricing non-compliance can also come up during business reviews with franchisees.

The price of the same McDonald's item can vary from one restaurant to another, and AI is increasingly helping McDonald's determine what price each location should consider.

The Reuters investigation shows a shift towards increasingly data-driven pricing. The leading factors deciding the final price here were local demand and customers' estimated willingness to pay.