AI is redefining McDonald’s prices in the US and fuelling tensions with franchisees

How the tool works

McDonald’s uses artificial intelligence algorithms to suggest prices in its US restaurants and some international markets. The system analyses millions of daily transactions, competitor prices and consumer behaviour to generate a recommended price for each item in each store.

Price differences and debate among franchisees

In Fresno, California, one restaurant in the chain charges $5.69 for a Big Mac, while another outlet about 3 kilometres away sells the same sandwich for $6.89, a difference of 21%. Both stores are operated directly by the company.

The variation may be due to the algorithm. The pricing engine, based on machine learning, processes data from nearly 14,000 restaurants in the country and determines what the company calls the “ideal price” for each product.

The platform is operated by Tiger Analytics and follows rules established by McDonald’s. These include prioritising price increases for items that have not been adjusted for at least two years and exempting ice cream and beverages from price increases during the summer.

Pressure versus autonomy

The company says franchisees are free to set their own prices and describes the portal as “a tool, not an obligation”. However, five restaurant owners told Reuters they had been pressured to adopt the system. Since January, the chain’s rules have required franchisees to interact constructively with the consultancy and approved pricing tools.

You don’t have much choice anymore, says Karen King, a former franchisee who left the chain last year.

CEO Chris Kempczinski told investors that non-compliance with price guidelines had become part of franchisee performance evaluations in some cases, affecting contract renewals and new store openings.

The tension also stems from conflicting incentives. The parent company receives a share of the total revenue from the stores, which encourages it to keep prices lower to attract more customers. Franchisees, on the other hand, bear the costs of wages, rent and other expenses, which have risen by 36% since 2019, according to the National Restaurant Association. Recently, the system has started recommending more restrained prices, which has increased friction.

Antitrust risks and experiences of other companies

The pricing portal warns that franchisees may compete with each other and must therefore comply with antitrust laws. William Kovacic, a former member of the US Federal Trade Commission (FTC), believes the warning shows that the company recognises a potential problem. Other experts consider the risk to be low, as courts generally give brands broad discretion to guide franchisees’ prices.

The use of algorithms to vary prices has already caused problems for other companies. In 2024, Wendy’s was criticised after its CEO announced tests of dynamic pricing, although the chain says it has not adopted the system. In December, Instacart ended tests that showed different grocery prices to different customers after a study revealed the practice.

Despite suggestions of lower prices, traffic at McDonald’s stores in the United States has fallen year-on-year in every month since March, according to Placer.ai.

Frequently Asked Questions

• Does McDonald’s use artificial intelligence to set prices? Yes, algorithms analyse sales, consumer behaviour and competitor prices to suggest ideal prices per store.
• Why can the same Big Mac have different prices? Factors such as local costs, competition, demand and recommendations from pricing systems can generate variations.
• How does McDonald’s pricing AI work? The system uses machine learning to process millions of transactions, taking into account sales history, prices of nearby competitors and estimates of consumers’ willingness to pay.
• Since when has McDonald’s used AI for pricing? The practice was reported by Reuters as early as 2019, with the platform operated by Tiger Analytics.
• Are franchisees required to follow AI recommendations? The company says the recommendations are not mandatory, but some franchisees have reported pressure to use them.
• What factors does AI consider when making price recommendations? Transaction data, public competitor prices, historical adjustment records and estimates of consumer price sensitivity.
• Can the use of AI for pricing generate antitrust problems? Experts discuss this risk, although franchise networks generally have broad discretion to guide prices when franchisees retain the final decision.
• Do other companies use AI for pricing? Yes, several companies use algorithms to adjust prices, as seen in tests by Wendy’s and Instacart.
• Why do franchisees criticise the tool? They claim that the tool has increased price differences between nearby stores and that the parent company has increased pressure to use the recommendations, in addition to having conflicting interests with the company.