On October 2, an Illinois man filed a proposed nationwide class action against McDonald's in federal court in Chicago. The suit alleges the company conspired with its independent franchisees to fix menu prices with algorithms trained on nonpublic data, Reuters reported. McDonald's said in a statement that the allegations were speculative and uninformed, and that "AI does not set the price of a Big Mac or any other menu item." Nothing has been decided. The complaint asks a judge to certify the case as a class action.
The lesson for owners doesn't depend on how the case comes out. If software recommends your prices, you're responsible for knowing what it learns from and who else takes prices from the same source. "The software recommended it" is a poor answer to give anyone who asks how you set a price.
Reuters reported that McDonald's engine analyzes data from millions of daily transactions across the chain's restaurants. According to AP's account of the complaint, the tool collects data that competing franchises wouldn't normally share, such as store-level sales. Franchisees own and operate 95% of McDonald's 14,000 U.S. stores. The setup is one engine fed by thousands of restaurants, most of them separately owned, and it sends a recommended price back to each of them.
That shape isn't unique to fast food. In a speech this May, a senior Justice Department official described a model with the same outline as "software platforms that aggregate competitor data and return pricing recommendations to those same competitors." Reuters notes that plaintiffs have filed a wave of class actions in recent years alleging that companies used algorithms or AI to coordinate prices for hotel rooms, apartment rentals and other purchases.
McDonald's has a real answer to all this. It says franchisees make their own pricing decisions, and the tool's terms say franchisees are "always free to determine the final price," according to Reuters.
If the franchisee is free to set the final price, then the franchisee is the one who decided. The same terms, Reuters reported, warn users that they may be competitors of one another and tell them to consult their own attorneys. The software can do the math. The owner who accepts its number still owns the price.
If you use a pricing tool, you may never have asked what it learns from. A franchisee on the franchisor's platform takes a number from a system somebody else built, and so does a property manager whose software suggests rents. Ask the vendor four things this month. Ask what data trains the recommendations, whether your data trains anyone else's, who else in your market uses the same tool, and whether you can see why it recommended what it did. Then write down who in your company sets the final price and on what basis. Take the answers to your attorney, because whether a given setup is a problem is a legal question, and it's theirs to answer.
RVRBN builds AI systems for small businesses, so we have an interest in owners using tools like these with their eyes open.
Watch for McDonald's first response in court. The company told AP it would vigorously defend itself. Whatever it says, know what your own tool runs on before anyone asks.
If you want to talk through what this means for your company, get in touch.