I think if I'm a McDonald's franchisee this week I'm probably really angry about this AI pricing stuff, and let me explain.
McDonald's franchisees have for decades controlled their pricing, which is why the prices vary from one store to the next. (Our three closest McDonald's all price their Big Macs differently, for instance.)
This is an important part of the franchise business. As local owners, they're supposed to have that control, because their costs vary and they need to generate a profit.
The company provides a pricing recommendation tool, which was built by Deloitte and uses machine learning, and probably AI, to make those recommendations. Those recommendations are based on a variety of factors, and the use of AI to make them would be completely understandable because pricing is difficult business. Yet operators don't have to follow it, and sometimes don't.
In recent years, as its traffic has declined, McDonald's has exerted some real pressure on operators to go along with national value offers. McDonald's has to do this because, again, franchisees control the pricing.
This came up recently, when Chris Kempczinski blamed "inconsistent execution" for part of the failure of the $3 and Under Menu during the company's last earnings call, when he noted that 60% to 65% of operators followed the recommended prices.
Earlier this year McDonald's added a new value standard to its franchise rules. So all the pressure on operators has been on value.
As the AI story has played out on social media, it has played like AI is doing the pricing. And consumers are worried that AI pricing will mean dynamic pricing, much like we see in other industries. That is a legitimate concern. And many consumers are still very frustrated by fast-food prices, and McDonald's is at the epicenter of that frustration.
But unless all my sources are flat-out lying to me, AI does not price McDonald's Big Macs or its other items. The company does not do dynamic pricing. And it doesn't price based on the customer.
Yet the uproar is likely to intensify the anger not just at McDonald's, but at other fast-food chains, where franchisees have seen profits take a hit while bankruptcies are soaring.
2 comments:
Maze should be very skeptical of any statement from a corp employee
That's not a reporter's job. He reports what corporate says. He doesn't judge it or add his own commentary. About half of what corporate tells the press is untrue, especially in the franchise business.
In McDonald's case, Jonathan would love quotes from real-life Owner/Operators to balance the discussion. But the Operators are peeking out from behind their SAM Walls and won't say a word.
So corporate can say whatever they want. They know that no one will challenge their statements.
Jonathan likely has a built-in lie detector, but he can't use it.
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