Pizza Hut franchisee sues over AI system claiming $100 million in losses from delivery failures

Frustrated franchisee sues Pizza Hut over crappy kitchen AI

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. ®

Pizza Hut Franchisee Sues Over AI Delivery System, Alleges $100 Million in Damages

The system allegedly resulted in "cascading" failures like late deliveries and a drop in sales. A new lawsuit is just the latest example of why AI probably shouldn’t be used for everything. A Pizza Hut franchisee claims the chain’s AI-powered delivery system, meant to optimize orders and speed up deliveries, instead backfired and cost it more than $100 million. Earlier this month, in the Texas Business Court, Chaac Pizza Northeast sued Pizza Hut after its restaurants were forced to use an AI delivery management platform known as Dragontail. Pizza Hut’s parent company, Yum! Brands, acquired Dragontail Systems in 2021. Chaac Pizza Northeast operates more than 100 Pizza Hut locations in New York, New Jersey, Maryland, Washington, D.C., and Pennsylvania. The company alleges that before it adopted Dragontail, more than 90% of its pizza deliveries arrived within 30 minutes of an order being placed and that it consistently received high satisfaction scores from customers. But Chaac claims the system’s rollout caused “cascading operational breakdowns and customer dissatisfaction." The main issue appears to be that Dragontail gave DoorDash delivery drivers access to real-time status, workflow, and order timing. Chaac alleges that some drivers used that information to wait up to 15 minutes in the restaurant for additional orders, leaving pizzas sitting out after they came out of the oven and resulting in longer delivery times. Those delays and disappointed customers allegedly caused sales to nosedive. Chaac Pizza Northeast claims its year-over-year sales growth in New York City fell from 10.19% to -9.78% after the system was implemented. The company is now seeking more than $100 million in damages. Pizza Hut did not immediately respond to a request for comment from Gizmodo. The lawsuit comes as Pizza Hut has been struggling nationally. Yum! Brands announced in February that it plans to close 250 Pizza Hut locations. The company also said it was considering selling the chain last year. Pizza Hut isn’t the first fast-food chain to adopt AI tech with mixed results. Burger King made headlines earlier this year when it rolled out a new AI-powered management platform in its restaurants that keeps an eye on everything from when menu items are running low to complaints about dirty bathrooms, and even how employees interact with customers. The system even gave locations and shifts “friendliness scores.â€Â McDonald’s, Wendy’s, White Castle, and Taco Bell have also tested or used AI in drive-thru ordering in recent years. Taco Bell quickly decided to retreat from the strategy after it found the public really liked messing with the AI by doing things like asking for “18,000 cups of water, please.â€

Pizza Hut's AI Store Control System Is Such a Disaster That It's Wasted $100 Million, Lawsuit Alleges

Can't-miss innovations from the bleeding edge of science and tech A lot goes into getting that warm pizza to your doorstep. Dough is kneaded, toppings are sprinkled, ovens are fired up, and cars hit the road. Did we mention there's an AI pulling all the strings? That's the case at Pizza Hut, at least, and not everyone's happy about it. One of the pie-slinging chain's largest franchisees in the country is suing the parent company over its mandatory deployment of an AI-powered kitchen management and delivery system that's been so disastrous that it's allegedly caused the franchisee to lose over $100 million, according to the lawsuit. The franchisee, Chaac Pizza Northeast, operates 111 Pizza Hut locations on the East Coast, including in New York, New Jersey, and Washington, DC. In the suit filed earlier this month, Chaac accused Pizza Hut HQ of forcing stores to adopt Dragontail, a back-of-house management system that the company boasts is powered with "true AI throughout" and provides "AI scheduling for delivery/service." But Chaac claims that its operations are more jumbled than ever because of the AI system. Before adopting Dragontail, more than 90 percent of its deliveries arrived on a customer's doorstep within 30 minutes, it claimed in the lawsuit, per Restaurant Business. After adopting it in 2024, that dropped down to just 50 percent, and the "rack time," the amount of time a pizza spends outside of an oven in the store, jumped from less than five minutes to up to 20. That led to the two most chilling words in the pizza delivery biz: "colder product," the lawsuit said. A lot of this comes down to the way the AI system handles DoorDrash drivers, the suit argues. Before, the franchisee manually inputted orders into DoorDash for deliveries and had its own contract with the delivery app. Now, Pizza Hut has an official national partnership with DoorDash. Paired with the AI-powered Dragontail system, DoorDash drivers get to see real-time info on the kitchen workflow, according to Business Insider's coverage. As a result, the suit alleges, drivers will wait up to fifteen minutes so they can take multiple orders, delaying deliveries and chilling the chain's precious pies. Chaac claims Pizza Hut breached its franchise agreement by forcing its restaurants to keep using Dragontail despite it "materially degrading delivery metrics" and customer satisfaction, per Restaurant Business. After adopting Dragontail, it says, its year-over-year revenue growth in New York City inverted on itself from over 10 percent to around negative 10 percent. Shoddy "AI" implementation mandated from above that turns exploited gig workers into the enemy -- it's a timely reflection of our current optimization- and automation-obsessed moment. It's also another chapter in the idiotic saga of restaurants trying to adopt AI that they don't need, like Taco Bell's flubbed AI drive-thru. If Pizza Hut is ever to return to its salad-bar days, its weird insistence on using AI probably won't be the reason why.

Pizza Hut franchisee claims $100 million losses from 'cascading operational breakdowns' in AI adoption gone wrong | Fortune

A major Pizza Hut franchisee is suing the pizza chain, claiming gig workers leveraged its AI system for their own benefit, causing "cascading operational breakdowns" that pummeled sales at more than 100 locations. Pizza Hut franchisee Chaac Pizza Northeast -- which operates more than 110 Pizza Huts across New York, New Jersey, Maryland, Washington, D.C., and Pennsylvania -- filed a lawsuit in Texas Business Court earlier this month claiming that its franchiser's Dragontail Artificial Intelligence system gave outsized visibility of operations to third-party delivery drivers, enabling them to prioritize certain orders, slowing delivery times and throttling customer satisfaction. The litigation was first reported by Restaurant Dive. Chaac is seeking $100 million in damages for lost business and enterprise value. Yum! Brands, Pizza Hut's parent company, did not respond to Fortune's request for comment but told Restaurant Dive it did not comment on ongoing litigation. "We are in the process of reviewing the claim and will respond through the appropriate legal channels," a spokesperson said in a statement. The allegations are the latest manifestation of the simmering tension between workers and employers, and even franchisees and licensees, over automation and productivity across jobs. This is particularly felt in restaurants, where staff shortages and frequent turnover have pushed fast-food businesses to turn to AI systems and robots in an effort to reduce labor costs, ballooning global restaurant automation into a $28 billion market this year. Ironically, the unintended consequences of this particular example seem to have empowered gig workers to take back some autonomy, allegedly using AI to coordinate deliveries for their schedule, and racking up losses for the franchisee at the other end. Labor economists are skeptical of widespread automation in restaurants, warning productivity benefits are often modest compared to the cost of the new technology, and that truly unlocking benefits of AI in the industry requires a complete overhaul of operations. "To really get the benefit of robots or artificial intelligence, you need to redesign the whole system, rather than just including one robot to do a particular thing," Ajay Agrawal, professor of entrepreneurship at the University of Toronto's Rotman School of Management, previously told Fortune. According to Chaac, Yum! Brands may have fallen prey to a similar unintended consequence of automation. The conglomerate finalized its acquisition of Dragontails in September 2021, touting the platform's ability to optimize kitchen flow and driver dispatching by assisting workers with the timing and sequencing of orders, as well as planning optimal delivery routes. But combined with the fallout of Dragontail, Pizza Hut also minted a national contract with DoorDash, giving Dashers greater access to Chaac's kitchen operations and order timing. As a result, Dashers allegedly began waiting to accept orders in order to batch them together, which led to longer wait times and slower deliveries. Chaac alleged drivers waited 15 minutes to pick up orders, resulting in a longer period of pizza sitting out of the oven waiting to be delivered. The lawsuit also claimed other drivers could see tip amounts for orders, disincentivizing them from claiming certain orders. Pizza Hut allegedly did not properly train operators to use the system or fulfill requests for support. "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 complaint said. Chaac alleged that prior to Dragontail's 2024 deployment in New York, the franchisee was among Pizza Hut's best-performing operators in delivery times, customer satisfaction, and sales growth. According to the lawsuit, Chaac managers previously manually input orders into DoorDash tablet software that processed delivery orders, as well as allow an operator to prevent Dashers with lower ratings from accepting orders. The franchisee claimed "more than 90% of pizza orders at Chaac's were delivered within thirty (30) minutes." Chaac's stores at one time accounted for 15% of DoorDash's Pizza Hut volumes from its Drive Program, despite the franchisee's locations accounting for fewer than 2% of Pizza Hut's U.S. stores, the complaint stated. While Yum! Brands has continued to thrive by leaning on its chains like Taco Bell, Pizza Hut has struggled to grow. The pizza chain reported a 4% drop in same-store sales last quarter, offset by stronger international same-store sales that ultimately resulted in flat sales globally. Beyond Dragontail, the conglomerate has leaned into AI to increase operational efficiency. Last year, the conglomerate announced a partnership with Nvidia to deploy AI to take drive-thru and call orders in 500 locations. But fast food giants have seen mixed success integrating AI into their operations. Wendy's drew criticism after an announcement of an AI-powered digital menu over concerns it would lead to surge pricing, which the company denied. McDonald's has invested in AI firms since at least 2019 to speed up orders, but ended a two-year partnership with IBM in 2024. The change came after customers took to social media about incorrect orders they received from the fast-food joint, including nine sweet teas and 260 McNuggets.