Pizza Hut parent company Yum Brands acquired AI-based kitchen technology company Dragontail in 2021. Since then, Yum’s executives have touted its effectiveness at improving restaurant operations, delivery efficiency and customer satisfaction scores, especially at its pizza chain (Yum also owns Taco Bell, KFC and Habit Burger & Grill).
But one franchisee isn’t sold on the product and has lobbed a lawsuit against Pizza Hut for its mandatory implementation of Dragontail, claiming it has caused operational disruptions and financial losses exceeding $100 million. Chaac Pizza Northeast LLC, which operates 111 Pizza Hut locations in New York, New Jersey, Maryland, Washington, D.C., and Pennsylvania, filed a lawsuit last week in the Business Court of Texas First Division.
In the lawsuit, Chaac said it is a top-performing franchisee that generated double-digit sales growth prior to the deployment of Dragontail, but operational disruptions from the technology led to lost revenue, profits, enterprise value and reputational damage. Chaac further claims that the disruptions hindered its ability to meet Pizza Hut’s minimum standards for delivery speed.
Further, Chaac previously had its own contract with DoorDash, but Pizza Hut now owns the national contract with the delivery provider. The franchisee says this created additional financial burdens and removed its abilities to control or communicate with DoorDash drivers to ensure they would meet the franchisor’s speed standards.
Prior to the Dragontail rollout, Chaac’s managers manually inputted orders into the DoorDash tablet to facilitate deliveries, which the franchisee said was more effective. The franchisee claims Dragontail’s integration created delays and “invited stacking and other algorithmic behaviors” that significantly slowed service times. Chaac also claims Pizza Hut failed to offer proper Dragontail training to managers beyond how to enter an order.
“The use of Dragontail led to slower delivery times, colder product (caused by delays), and reduced customer satisfaction. Specifically, Rack Time increased from under five 5 minutes to as much as 20 minutes, and delivery time increased substantially from 30 minutes to more than 45 minutes. Only approximately 50% of orders were delivered within 30 minutes,” the lawsuit states.
Chaac claims it objected to Pizza Hut’s requirement to adopt and use Dragontail without “reasonable accommodation” for its delivery partnership with DoorDash. Chaac offers only carry-out and delivery and therefore relies heavily on DoorDash for deliveries. Its 111 restaurants generate 15% of DoorDash’s Pizza Hut deliveries out of the chain’s approximately 6,500 locations nationwide, according to the lawsuit.
“For four consecutive years, Chaac was a top operator, earning marks for strong guest satisfaction that were well above the system average. Prior to the complete implementation of Dragontail, Chaac reported double-digit sale increases, outperforming almost every Pizza Hut franchisee from early 2020 through the beginning of 2024, far exceeding the brand’s averages. After the rollout of Dragontail, Chaac’s performance dropped significantly below system averages. Only recently—after analyzing Chaac’s business operations and variables to assess its quick financial decline to its surprise—did Chaac discover that Dragontail, the only significant change in its business since it was the top-performer, caused its numbers to fall,” the franchisee said.
Chaac claims it has requested assistance and insight into its financials, but says, “Pizza Hut refused” and demanded the continued use of Dragontail.
The franchisee claims that Pizza Hut has breached its franchise agreement for implementing Dragontail in Chaac’s restaurants despite its exclusive reliance on aggregators, requiring the continued use of Dragontail despite “materially degrading delivery metrics” and customer satisfaction, and impairing Chaac’s ability to meet minimum speed standards, among other breaches.
Chaac Pizza Northeast is asking for damages amounting to no less than $100 million, as well as court and attorney fees and interest.
In a statement emailed to Restaurant Business, Pizza Hut responded, “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.”
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