Pizza Hut franchise alleges company’s new AI system cost it $100 million; says in lawsuit: 'It caused significant delays and …’

An artificial intelligence (AI) system has reportedly cost a Pizza Hut franchise operator in the US millions of dollars. One report claims that a large franchisee of the food chain has sued the company, alleging that an AI-powered delivery management system led to delays, lower customer satisfaction and losses of more than $100 million across more than 100 restaurants. According to a Business Insider report, Chaac Pizza Northeast, a Pizza Hut franchisee operating around 111 outlets across New York, New Jersey, Maryland, Washington DC, and Pennsylvania, recently filed a lawsuit in Texas Business Court claiming that the company’s rollout of the Dragontail AI system negatively impacted delivery performance and disrupted business operations.

“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 franchise operator said in the lawsuit.

According to the franchisee, the software resulted in "cascading operational breakdowns and customer dissatisfaction" because it provided DoorDash drivers with the information about how kitchens work and how orders are prepared. Furthermore, it was noted that prior to the introduction of the AI system, more than 90% of deliveries were made within 30 minutes, and sales growth was in double digits. However, delivery performance and sales reportedly deteriorated after Pizza Hut required stores to adopt the AI system in 2024.

Lawsuit alleges Pizza Hut’s AI system increased delivery delays

The lawsuit claims DoorDash drivers began waiting to combine multiple deliveries after gaining access to real-time information on when orders would be ready. According to the filing, drivers sometimes waited “up to fifteen (15) minutes” before leaving with completed orders.

The complaint claims that the delays increased the time between when pizzas left the oven and when they arrived at customers, harming food quality and delivery speed. The franchisee also says drivers can see tip amounts and identify cash-payment orders, which could affect how they choose which deliveries to take.

Chaac further claims that Pizza Hut failed to provide adequate training and support for the software while ignoring declining delivery metrics and falling sales. In New York City, the lawsuit says year-over-year sales growth shifted from positive 10.19% to negative 9.78% after the rollout.

The lawsuit even accuses Pizza Hut of breaching franchise agreements by mandating continued use of the software despite alleged performance issues and failing to exercise “reasonable business judgment” in adapting the system to the franchisee’s delivery model.

Chaac Pizza Northeast is seeking more than $100 million in damages, along with attorneys’ fees and other relief.

Responding to the allegations, a Pizza Hut spokesperson told Business Insider that the company was reviewing the claims and would respond “through the appropriate legal channels,” while declining to provide further comment.

The lawsuit comes as Pizza Hut’s parent company, Yum! Brands face pressure in the US market following several quarters of declining same-store sales, and earlier this year announced plans to close 250 Pizza Hut locations in the country.