Businesses nowadays are increasingly adopting new technologies to obtain competitive advantages. Artificial Intelligence (AI) stands out as an advanced, novel technology that has potential benefits across industries. The fast-food industry is one such industry that is highly competitive, evolving, and requires advanced technologies to cater to modern customers who increasingly demand fast, digitized services. Increased customer engagement has also become a main driving force to adopt technologies since these consumers demand quick, personalized, digitized services. The fast-food industry, compared to other industries, produces food that is perishable, and quick, which demands proper handling before, during, and after preparation, for instant consumption. Services should be quick, fast, and accessible, where adopting advanced technologies has become a necessity for the industry players' survival. Larger organizations have successfully adopted AI and have harnessed a competitive advantage. Conversely, Smaller and Medium Enterprises (SMEs) have successfully adopted digital technologies, assuming it as AI. They have not yet translated to adopt AI, which could threaten their survival and competitiveness in a highly evolving, dynamic industry. On the other hand, AI is a novel technology that has much potential, yet many are unaware of where the technology is heading, specifically, SMEs have a limited understanding and exposure to this technology, demanding more research.  The main purpose of this study is to gain a comprehensive understanding of how fast-food SMEs in Sweden perceive AI, the reasons for non-adoption, and the reasons influencing the behavioral intention to utilize AI for customer engagement within the organization. The study utilizes the Unified Theory of Acceptance and Use of Technology (UTAUT) framework to analyze how performance expectancy, effort expectancy, social influence, and facilitating conditions influence individual SMEs' behavioral intentions towards AI adoption on customer engagement by studying it from an individual, organizational context. Through qualitative interviews with fast-food SME owners, IT managers, and marketing managers, the research explored a nuanced understanding of how AI is being perceived by SMEs, challenges, barriers, and factors influencing their adoption behavior.  The research findings indicated that AI technology itself is immature and the immediate business use case is not apparent for SMEs. It was also revealed that SMEs have a misconception between AI and digital technologies. Though there is enthusiasm and willingness to adopt AI within SMEs, significant challenges remain, such as a lack of understanding about AI, resource constraints, complexity, skills, and influences from competitors and stakeholders. The research identified factors specific to SMEs that contribute to extending the UTAUT framework, such as customized payment plans, establishing technology associations, and new business models suiting SMEs. It was further evidenced that customer engagement is not an impactful mediator that influences AI adoption within SMEs. It was concluded that though SMEs have the potential to improve performance, their adoption is limited due to the immaturity of AI and due to identified challenges.