Product1 publisher3 min readPublished
McDonald's tracks which franchisees stray from its AI's per-store menu prices
McDonald's uses AI to price each store's menu by local willingness to pay, Reuters reports, with a Big Mac costing 21% more at one Fresno store than another. The tool's terms leave franchisees answerable for antitrust compliance on prices headquarters recommends and monitors.
The Product Desk · Product desk
What happened
- The franchisee portal shows owners messages such as "your restaurant is showing MEDIUM SENSITIVITY to price," according to the interface Reuters reviewed.
- A corporate document reviewed by Reuters shows McDonald's tracks adherence to the platform and notes any deviation from its price recommendations.
- New business standards require franchisees to be "constructively engaging with McDonald's approved Pricing Consultant and Tools," per an internal communication.
- The portal's terms of service warn that owners "may be competitors of each other" and must comply fully with antitrust and competition laws.
- The platform once suggested a Connecticut franchisee charge $18 for a single Big Mac, a recommendation that went viral.
Compiled by The Product DeskSomething wrong?How this is made
Why it matters
- contradiction McDonald's says franchisees set their own prices, yet owners describe pressure and follow-up calls, so the stated policy is a poor guide to how the tool is used in stores.
- exposure Identical items at different prices in one city let any customer who visits two outlets see the model's output, and the franchisee is the one who answers for it.
- constraint Because corporate controls renewals and new locations, an owner's freedom to override the model is limited by what the override might cost at renewal time.
Store owners told Reuters that straying from the portal's recommended prices brought phone calls from corporate [9]. "You don't really have much of a choice anymore," said Karen King, a former store owner [10].
McDonald's describes the portal as "a tool, not a mandate, designed to provide restaurant-specific recommendations to help franchisees deliver value for customers and make informed business decisions" [17]. It called Reuters' reporting "speculative and uninformed" [16]. Owners describe the same software differently. A handful told Reuters the company pressures them to use it [5]. Corporate decides whether an owner may renew a license or open another location [11]. Chief executive Chris Kempczinski told investors that "pricing non-compliance in certain cases is part of those conversations" about renewals [12].
Engadget compares the system to ride-share surge pricing [22]. The reporting describes something slower. McDonald's sends pricing guidance at least three times a year [8], and it has used some version of the technology since at least 2019 [18]. In 2023, Kempczinski told investors the company had developed proprietary tools to evaluate pricing at individual restaurants [24]. The reporting does not show prices changing by the hour or rising during a lunch rush. It shows a price level for each store, set from an estimate of what that store's customers will pay [1].
I think the portal is built for headquarters, and the franchisee is the one left to answer for its numbers. Those numbers are easy to see. A Big Mac is the same item at every store, yet stores in the same city can charge different amounts for it [2]. In Fresno the gap was $1.20 between two stores two miles apart [4] [1].
According to Engadget, the tools "maximized for price, at the expense of all else" [23]. Other franchisees have alleged that some version of the tools recommended large price increases during the pandemic and afterwards, as inflation kept climbing [21].
The terms of service say franchisees are "always free to determine the final price" and suggest owners seek independent legal counsel [14]. Engadget reads that clause as potentially absolving corporate of antitrust concerns [14]. William Kovacic, a former federal regulator, told Reuters the language is "an acknowledgment there's a potential problem" [15].
For anyone building or deploying a pricing recommender, two axes sort the exposure. One is whether adherence data feeds any decision about the user's contract. The other is whether customers can compare prices across nearby outlets. Unenforced and hard to compare, a recommendation is ordinary decision support. Unenforced but comparable, the operator answers to customers for a price the operator picked. Enforced but hard to compare, the coordination question builds up out of sight, and the "free to determine the final price" clause carries the whole defense. Enforced and comparable is where the Reuters documents put McDonald's. Both the customer risk and the legal risk are live there, and the disclaimer rests on the franchisee, the party with the least control over the number.
I would keep adherence data out of contract decisions, or drop the claim that the user sets the price. Keeping it out costs the network its easiest way of getting stores to follow the model. Dropping the claim puts the vendor's name on every price a customer compares.
What to watch
- Whether the Connecticut franchisee's ongoing lawsuit brings the pricing tool's recommendations and adherence records into court.
- Any change to the business standard requiring franchisees to engage with approved pricing tools, or to the terms saying owners set the final price.
- Whether antitrust enforcers examine shared per-store price recommendations among franchisees whom the tool's own terms call potential competitors.