The next time you find yourself paying way more than what’s warranted for McDonald’s decidedly mid-tier burgers, you may have more to blame than just faceless executives.
According an investigation by Reuters, the fast food chain is using AI models to determine its menu prices across the US, with the system creating an estimate of how much each store’s customers are willing to pay. (Its alarming degree of data collection on its patrons has recently spent some time in the spotlight.)
Per the reporting, McDonald’s machine learning algorithms continually analyze millions of daily transactions and generate an “optimal price” for each menu item at all of its nearly 14,000 restaurants. Three franchisees told Reuters that the AI pricing engine has widened existing price differences between restaurants, even as close as between neighborhood to neighborhood.
In Reuters‘ testing, it found one store in Fresno, California selling Big Macs for $5.69, while another restaurant just two miles away sold them for $6.89, a 21 percent price hike.
Though in a statement to the outlet McDonald’s insisted that the AI pricing portal is a “tool, not a mandate,” several franchisee owners said they were pressured into using the AI pricing scheme.
AI-driven dynamic pricing has become increasingly common in the food industry, though because of reputational risks it brings, companies are rarely forthcoming about it.
In December, Instacart was caught experimenting with an AI dynamic pricing tool on a select group of unwitting customers, and canned the program after the ensuing public backlash. An analysis found that a family household could spend an extra $1,200 per year on Instacart groceries if they were exposed to the AI pricing scheme.
At the Golden Arches, the AI recommendations aren’t always appreciated by franchisees. While customers should be worried about prices going up based on an AI’s recommendations, the local store owners are worried about them going down. McDonald’s corporate takes a cut of each location’s revenue, not profit, so it stands to boost its bottom line even if the owner of the location is losing money. According to the reporting, that’s caused some friction between franchisees and McDonald’s HQ as the AI models have lately recommended price cuts.
It seems that the AI pricing isn’t just a way for McDonald’s to squeeze more money out of customers, but to enforce obedience in its franchisees’ ranks. Corporate sends AI pricing guidance to franchisees at least three times per year, and tracks instances of their “pricing non-compliance.” CEO Chris Kempczinski reportedly told investors that “pricing non-compliance” is now a consideration in how it reviews franchisees.
Some of the AI recommendations are themselves guided by objectives given by corporate. Working with the AI firm Tiger Analytics, McDonald’s has regularly provided targets such as focusing on jacking up the prices of menu items that haven’t had a price hike in at least two years.
This isn’t McDonald’s first foray with using algorithms to automate its operations. It also experimenting with — for the second time — AI-powered drive thrus, and uses an AI hiring system.
More on food: Bizarre Glitch Causes Delivery Robots to Swarm Busy City Sidewalk
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