The back-of-house AI system that Pizza Hut has mandated its restaurants to adopt has been so poorly received by some franchisees, that one is using the company for $100 million in losses tied to the technology. Put that in your crust and stuff it! Chaac Pizza Northeast, a franchisee with around 111 Pizza Hut locations in New York, New Jersey, Maryland, Washington DC, and Pennsylvania, filed a complaint in the Business Court of Texas earlier this month accusing the Hut of breaching its franchise agreement by mandating Chaac adopt restaurant management AI from Dragontail, a provider of AI-powered food delivery software. What was supposed to be a platform that would unify multiple kitchen systems under one AI-managed umbrella allegedly turned out to be a disaster for Chaac, which claims it was a leader among Pizza Hut franchises on metrics like delivery speed and rack time (i.e., the time between a pizza leaving the oven and leaving the store for delivery) prior to forced Dragontail adoption. Pizza Hut parent company Yum Brands purchased Dragontail in 2021. “With the intention to improve efficiency and service to the customer, Dragontail did the exact opposite; it caused significant delays and pummeled consumer satisfaction,” the lawsuit filing states. Chaac further alleged that Pizza Hut didn’t provide promised Dragontail support, and refused to allow Chaac to step back its use of the product, “causing cascading operational breakdowns and customer dissatisfaction.” Chaac admits it might be a bit of a special case, however, because of its particular business model: The company’s Pizza Hut locations don’t have a dining room, instead exclusively offering carry out and delivery services. Chaac also doesn’t employ its own drivers, instead relying on DoorDash to handle its deliveries. Before Dragontail’s implementation, staff at Chaac Pizza Huts had to input pickup requests into a DoorDash tablet, according to the lawsuit, which would handle getting the delivery order to a driver. Centralizing all of the order-to-delivery pipeline under one product meant that DoorDash gained visibility into the entire pizza making process. On one side that makes things more efficient, as the complaint explains. “This access allowed DoorDash to know when the pizzas went into the oven and were ready for pick-up, and when other pizza orders would be ready for pick-up,” the suit states - not bad if that means drivers aren’t sitting around waiting. In practice, however, that’s not what happened. Drivers were able to see whether additional orders would be up soon, meaning many of them would grab one order and simply wait 15 minutes for another, meaning the first order was invariably late and cold by the time it got to a customer. DoorDash drivers were also able to see any pre-paid tips on the order and whether an order was paid in cash. In many cases, drivers would decline tipless and cash orders. “These issues, arising out of DoorDash’s visibility, caused a disruption in orderly delivery and significantly slower delivery times,” the suit claimed, adding that the changes ultimately benefited DoorDash at Chaac’s expense. “The damage was not abstract,” the suit continued. “Chaac suffered lost revenue, lost profits, loss in enterprise value, business interruption, and erosion of goodwill and customer relationships” as a result of Dragontail adoption. According to the lawsuit, loss of business and enterprise value due to the forced adoption of kitchen management AI caused is in excess of $100 million, which Chaac is demanding as recompense. It’s not difficult to find examples online of Pizza Hut employees complaining about Dragontail. Multiple Reddit threads from inside the 2020-2024 implementation period contain examples of employees describing dissatisfaction with the software. Several commenters note, as Chaac did in its lawsuit, that Dragontail took control out of the hands of its kitchens and put it in the hands of AI. “Dragontail’s integration with kitchen workflow and aggregator dispatch predictably stripped Chaac’s managers of operational control, introduced delays, and invited stacking and other algorithmic behaviors that slowed production and delivery,” the lawsuit argues. Pizza Hut has been struggling in recent years, with Yum closing hundreds of locations so far this year in the midst of a turnaround effort that included initiatives like adding Dragontail to the struggling brand’s locations; the company didn’t respond to questions for this story. Whether this’ll be another nail in Pizza Hut’s coffin or just a bump in the road will be up to a judge to decide. ®
