Tuesday, February 28, 2012

Sodexo: An evil in disguise?

Recently, there has been a huge hullabaloo about Sodexo coupons. Retail stores stopped accepting Sodexo coupons all of a sudden from January 2012. I've always been curious about the Sodexo business model and this incident acted as a catalyst to my curiosity. In trying to understand more about this issue, I've come to know more about the Sodexo business model as well. I'll try to summarize what I've understood thus far.

Sodexo (erstwhile Sodexho, wonder if this was inspired by my post) is a French conglomerate which is into food services and facilities management worldwide. Although I do not have any confirmed sources, but they must have invested a lot of money in govt machinery upfront to get a few laws passed. According to one of these laws, an employee gets tax benefit, subject to INR 3000 maximum per month, on the money spent on food and non-alcoholic beverages during working hours at offices.  Most of the IT companies give coupons worth INR 2200 per month (assuming 22 working days and 2 meals per day and INR 50 per meal). Since the employer cannot pay more than INR 50 per meal to the employee, the denominations of the coupons are always 50 or lower.  The use of these coupons was later extended to restaurants and then to grocery purchases. Many retailers accepted them for non-food purchases as well, but when income-tax authorities started questioning this, most organized retailers put systems in place to ensure these coupons would be accepted only for grocery items. Following are the key role players in this business model:

Employee: Employees pounce on every little opportunity to save income tax. Since Sodexo coupons offered a tax free money, employees jumped to this opportunity. Assuming an employee gets INR 2200 worth coupons every month, this effectively saves about  INR 660 in tax, assuming the employee is in 30% bracket. Even though many employees did not use office cafeteria services, they could use these coupons in retail stores and restaurants.

Employer: Employers started giving these coupons as perks and marketed it as an extra money in the employee’s pockets, since it’s tax free. Apart from the administrative headache, the companies didn’t have much to lose.

Stores: Retail stores and restaurants started accepting Sodexos to attract customers. Employees wanted to dispose of the unused coupons outside and this provided a great avenue for these stores to attract these customers. The stores redeem their Sodexo coupons for a 5% discount i.e., for every INR 100 worth coupons, Sodexo redeems INR 95 to the stores. This process usually takes 20-25 working days, compared to 24 hours taken by the Credit Card companies. One cannot rule out the possibility of these stores bloating the prices of certain items to compensate for this loss.
Why did shops stop accepting Sodexos?
Small denominations of Sodexo coupons implied increased processing times at the billing counters resulting into increased waiting time in queues for the customers. Apart from the administrative headache, there’s also a possibility of fake/damaged/expired coupons. To add to this, Sodexo is said to be asking for an increase in the commission (hitherto 5%) and at the same time an increased payback time. The only reason shops accepted Sodexo was because their competitors were doing so and not accepting meant losing customers. When Sodexo strong arm tactics were unbearable, supermarkets teamed up and decided to stop accepting, so as to force Sodexo to revert to earlier norms. And what better time to register the protest? Employees are given to choose Sodexo options in the months of March-April every year.

Sodexo: Sodexo is the biggest winner in this business model. First of all they receive 5% commission from the stores. They return the money only after 20-25 days. That is, they have had the money for a full 20-25 days without paying any interest. In fact, from the time the coupons are given to the employee to the dy Sodexo pays back to the store, it's practically free money to the Sodexo. Sodexo coupons usually come with an expiry date. No store will accept the expired coupons resulting into 100% profit for Sodexo. There’s a complex process by which one could renew the expired coupons, but very few people have the patience and perseverance to go through this process. Hats off to the French baniya who came up with this business model!

After going through so much inconvenience, I’m sure many of the employees have already decided to stop subscribing to these coupons in the next financial year.  The result of this turmoil remains to be seen, but my opinion is that given the unrest in the employee section, Sodexo has no option but to concede to the shopkeeper’s demands.

My 2-cents:

  • The government allows INR 800 a month as conveyance allowance without asking the company to issue travel vouchers. Then why make the distinction for food? The only party losing out in this deal would be Sodexo and hence they'd do their best to resist this model.
  • I wonder if Sodexo is losing money due to counterfeit coupons. If people could imitate currency notes, making fake Sodexo coupons should be a piece of cake.
  • Switch to electronic coupons at the minimum, which would resolve half of the issues at hand. Again, Sodexo would resist implementing this because with Electronic cards, processing becomes faster, which means Sodexo will have to reimburse money to shopkeepers much faster. 
  •  How many times have you driven to a far away supermarket / restaurant just because they accept Sodexo coupons? How much time have you wasted in supermarket queues because everyone wants to pay by Sodexo? How many times have you bought the stuff you don’t really need just because you can use Sodexo? How many times have you lost money because shopkeepers don’t return change when you pay by higher denomination coupon? Taking into account all these points, does it really make sense to boost this parallel economy?


  1. Sodexo issuing a rechargeable debit card like card would be the best thing. It is such an obvious solution. I have so many times suggested this to friends when we had discussion about sodexo. It is environment friendly: no printing on paper, fraud proof: duplication won't be easy, processing friendly: no long queues at stores, stores can get their money in less time. But I guess sodexo issuing a debit card is makes them a bank and a different set of RBI rules and regulations come into picture. Also sodexo has nothing to gain from it, in fact it goes against their business model. I think Indian government should simply ban corporates from issuing sodexos. Just pay the damn 2200 rupees in cash as part of salary and make it tax free. Everyone obviously eats food equivalent of that amount in a month and even if he/she doesn't it should not be a big deal. Not sure why these obvious things don't get into our countries bureaucratic heads. It's a pity, unless it a well motivated conspiracy by some big shots in the goverment.

  2. @Sachin: Bang on! You opinions exactly coincide with my 2-cents part in the blog. Hope someone in the govt machinery is listening to this...

  3. All this is possible because of loopholes in tax law. Remove the itty-bitty concessions and lower the general tax rates. Less people will bother with schemes like Sodexo.

    As for the paper-free rechargeable convenience of Sodexo - how about add-on credit cards issued (and managed) by the HR to its employees?

  4. Hi all my company allows to take 2750/ worth sodexo coupons i thought if i opt this i would be saving much i thought and can any body plz expain the tax calculation for the above amt.

    With Regards Kumar. JSK

    1. Hi Shiva, the tax calculation for sodexo coupons is pretty straight forward. The whole sodexo amount would be exempt from tax depending on the tax bracket you fall into. For example, in your case, the amount 2750 * 12 = 33000 would be exempted from your taxable income. So, let's day, you fall into 20% tax bracket, this would save you 33000 * 20 / 100 = Rs. 6600.

  5. In my opinion Sodexo coupons is a smart scam by a French company to acquire 5.5 % stake of the food market!

    Restaurant owners simply pay 5.5 % of the sales to this company and compensate this by hiking the price . So by now you understood who is the looser !!