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 
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 2200 per month (assuming 22 working days and 2 meals per day and 50 per meal). Since
the employer cannot pay more than 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:
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 2200 per month (assuming 22 working days and 2 meals per day and 50 per meal). Since
the employer cannot pay more than 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 2200 worth coupons every month, this effectively
saves about
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.
2200 worth coupons every month, this effectively
saves about
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 100 worth coupons, Sodexo redeems 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.
100 worth coupons, Sodexo redeems 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
- 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?
