A group of virtual cashiers from Nicaragua were at the center of the public relations firestorm that hit Canadian retail chain Freshii in the past weeks. The debacle pulled the general public into a debate over the potentially dark aspects of outsourcing jobs to other, less economically developed countries. Then again, it also exposes some of the blindspots in how the public views outsourcing in the larger context of globalization.
It all started with an experiment. This year, Freshii introduced Percy, a virtual cashier deployed at select locations in Ontario. The twist: instead of being greeted by an AI, customers would interact with an actual cashier -hired through outsourcing- that operated the machine remotely; as in, from another country.
The storm was unleashed after The Toronto Star reported that some of Percy’s operators worked from Nicaragua and were paid US$3.75 an hour. According to data collected by Glassdoor, people employed by Freshii to work a server position make between US$12 and US$16 an hour. Percy, a mix of automation and outsourcing, would in theory save the company about US$10 an hour in wages. Yet there’s very little information on who actually runs the virtual cashier program. Freshii has only stated that it is run by a third-party company.
The report caused outrage amongst the general public. Social media was flooded with people claiming they would never buy salad bowls, burritos or smoothies from Freshii ever again. Government officials weighed in on the issue too. Ontario legislator Peggy Sattler grilled the company for what she characterized as the exploitation of foreign workers and called for new labor regulations in the face of technological change. The province’s Minister of Labor, Training and Skills Development, Monte McNaughton, stated the outsourcing scheme was “outrageous” and that he trusted that customers would “vote with their feet”.
“I would say to the public to please be a bit more understanding. It’s not necessarily the case that when companies outsource to foreign countries, the local citizenry are losing out on jobs”– Frank Prempeh II
Freshii’s founder and long-time CEO Matt Corrin officially stepped down from his position on May 11, the same day the company released its first quarterly report of 2022. It’s still unclear whether the executive change had anything to do with the controversy around Percy. Corrin hasn’t addressed the issue publicly.
When There’s a Shortage, Look Elsewhere
The only official statement on the matter has come, strangely enough, from Percy itself. The virtual cashier took to its Twitter profile -launched in late April 2022- and posted a thread version of a “presentation letter” that can be found in its official website.
“It’s not about replacing people or jobs. It isn’t about lower pay or working conditions. It’s about a labor shortage across the restaurant industry,” reads the statement. “Most restaurants in North America offer rewarding jobs that pay above minimum wage. But young people, the backbone of retail, are unable to play the flexible role in the workforce today, due to more options and daunting financial pressures.”
The statement added some nuance to the picture. The North American restaurant industry is still in the midst of a revival after enduring strict Covid-19 restrictions for over a year. The National Restaurant Association’s latest report points to a soar in demand that will bring tremendous pressure due a short supply of workers which is expected to persist through 2022. Staffing firm PeopleReady reported a double-digit increase in job postings for restaurants in early March.
The Association also reported that “food, labor and occupancy costs are expected to remain elevated and continue to impact restaurant profit margins in 2022.” Facing such an outlook, it’s no surprise that restaurant chains are mixing outsourcing practices and technology to explore new methods for cutting costs. A survey done by Deloitte shows that cost reduction remains one of the “most tangible and attainable benefits achieved” by companies that outsource operations.
“It’s about a labor shortage across the restaurant industry”– Percy
Companies aren’t the only ones that benefit, though. Outsourcing creates advantages for the company’s local population too. Advantages which are rarely discussed by the public during PR firestorms like the one faced by Freshii.
“I would say to the public to please be a bit more understanding. It’s not necessarily the case that when companies outsource to foreign countries, the local citizenry are losing out on jobs,” said Frank Prempeh II, CEO at Corpshore Solutions and an Ontario-based entrepreneur. “Number one: new job niches are gonna be created, and almost all these job niches are gonna be higher paying jobs. Secondly, outsourcing enables product and service providers to be able to provide more optimized or cheaper products and services.
There are several paths that could help companies avoid these sorts of PR pitfalls, said Prempeh. They can launch education campaigns that explain to their clients the benefits of outsourcing. They can also provide and spotlight higher-paying niche jobs, or even invest in local communities.
How Far Can US$3.45 Take You?
Wages remain as the crux of the matter. While politicians and union leaders complained about the loss of jobs for the local population, the general public’s wrath focused on what they perceived as an indignantly low remuneration for Freshii’s remote cashiers.
Nonetheless, it all comes down to a matter of different economic realities. Minimum wage earners in Nicaragua make about US$1.10 an hour. That means that Freshii’s Nicaraguan remote cashiers earn more than three times the minimum wage in their home country. In other words, while US$3.75 can buy you very little in Canada or the US, it goes way farther in Nicaragua.
“More job opportunities are provided to the local economy, which reduces unemployment. Outsourcing actually decreases social vices and crime within communities in these less developed countries,” added Prempeh. “It actually helps integrates these economies with the economies of the parent countries.”
The public should not be surprised by the increasing prevalence of outsourcing as part of the business model of many companies. Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report saw a 58% increase in the number of respondents compared to 2019. About 29% of the respondents of the 2021 edition deal directly with consumer markets; 15% work specifically in the retail and consumer products segments.
That very same survey states that “as models shift to be less focused on location, organizations plan to develop more virtual and remote work strategies and leverage location-agnostic hiring to get the benefits of increased productivity and reduced costs”.