AI integration has probably made its way into the restaurants you regularly order from without you even noticing.
Voice AI ordering at drive-thrus, chatbots tasked with handling reservations, and smart kitchen technology aiding food preparation are among the many ways AI tools have become more integral to the restaurant industry. In the case of a Pizza Hut franchisee, they’re none too pleased with the way AI has been implemented into their daily operations and have been disgruntled enough to file a lawsuit against the very company that forced them to use it.
Here’s how an AI delivery system did more harm than good for the Pizza Hut franchisee and just how much money in damages that franchisee is requesting from the popular pizza chain.
Longer waiting times, angrier customers and millions of dollars lost
According to Business Insider, franchisee Chaac Pizza Northeast filed a lawsuit against Pizza Hut on May 6, accusing the pizza chain of forcing its stores to adopt Dragontail, an AI delivery-management system.
Chaac, which operates Pizza Hut’s across New York, New Jersey, Maryland, Washington, D.C. and Pennsylvania, alleges that Dragontail has negatively impacted its business across 100+ restaurants and led to the franchisee losing $100 million in lost business and enterprise value.
Comments from Chaac in the lawsuit paint a picture of how the franchisee’s business was strong before the newly installed AI delivery system caused order delays and made customers wait a bit longer for their deliveries. “The use of Dragontail led to slower delivery times, colder product (caused by delays), and reduced customer satisfaction,” the lawsuit stated.
In that same lawsuit, Chaac has noted that it once stood out as a top operator for the pizza chain, as it reported double-digit sales increases and exceeded the performance of neighboring Pizza Hut franchisees from 2020 up until 2024. After Dragontail became a part of Chaac’s day-to-day operations, the franchisee noticed that its positive financial numbers began to fall. In a numbers sense, Chaac claims its year-over-year sales growth in New York City decreased from 10.19% to -9.78% after the AI delivery system was deployed.
Pizza Hut responsed to Restaurant Business: “As this matter is pending litigation, we cannot comment in detail at this time. We are in the process of reviewing the claim and will respond through the appropriate legal channels.”
Bottom line
Chaac’s lawsuit highlights broader operational challenges facing Pizza Hut. During a February earnings call, parent company Yum! Brands announced plans to close 250 Pizza Hut locations in the first half of the year.
Allegations that mandatory AI systems are damaging the business of a top-performing franchisee add to an already difficult period for the brand. Moving forward, Chaac’s recovery will depend heavily on resolving these technical and logistical disruptions to restore its previous sales growth.
