Sodexo Coupons – Invalid. A Business Model explained
Short Summary: As of January 1st, 2012, all retail store chains in Bangalore (and across India) have stopped accepting Sodexo coupons in lieu of items purchased. Every firm hands out these Sodexo vouchers to its Employees (included in compensation package). Employees are now worried that these Sodexo coupons would be useless as they are not being accepted. My view is that this might just be a temporary phenomenon since there are a lot of stakeholders who will lose out if these vouchers prove invalid. The post explains the how and why of it.
If it were a school debate, the subject of the topic would be ‘Sodexo coupons – A boon or a curse. Discuss’.
Fortunately most of us are past that stage of life where we need to debate such issues in front of other school kids. Unfortunately though, unless we discuss and debate, we would lose money on a transaction like this. Let us look at the bare bone facts of the Sodexo business and try to draw some conclusions.
The perquisite valuation rule (Sodexo/Food coupon is a perk) (Fringe Benefit tax) governing the issuance of Food coupons states (Rule 3(7)(iii)) -
(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:
Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.
If you didn’t have the patience to go through the rule, here’s what it states in summary. The Employer cannot pay more than Rs. 50/- per meal during working hours. Assuming a reasonable 2 meals per day and 22 working days in a month, it works out to Rs. 2200/- p.m food coupons (which is the limit that most of us get) (the max. anyone can get is Rs. 3000/-). Of course, since the Employer cannot pay more than Rs. 50/- per meal, the maximum value of any one Sodexho coupon cannot exceed Rs. 50/-. Hence the denominations are always Rs. 50/- or lower (usually they are Rs. 50/-, Rs. 35/-, Rs. 20/- and Rs. 10/-).
These coupons are useful for different parties in multiple ways. There are four parties involved in any food coupon transaction as illustrated below (along with Sodexo’s business model):
Employee: The Employee is usually very excited with any prospect that saves him a little tax. And so is the case with Sodexo coupons too, where availing the Sodexo coupon opportunity will make the food coupon amount tax free. For employees in the highest tax bracket (30%), this would save tax of Rs. 660/- p.m (or Rs. 7920/- per year). Of course, if you didn’t opt for the coupons, you would get Rs. 1540 as deposit in your bank account (Rs.2200/- after tax deduction). But did the food coupon craze take off in huge numbers just because an Employee could save some tax and buy food from his office canteen? Absolutely not. The reason it took off was because the retail chains (FoodWorld, Spencers, Foodbazaar, Big Bazaar, MK Retail, Total, Reliance etc.) started accepting the coupons for anything and everything that you purchase at their store. Employees jumped at the opportunity (and most people mentally classify these coupons as free money than hard cash – look at some stuff they buy using the coupons. They would never buy it with hard cash).
Company: Most companies started this perk out as a differentiator to employees (and marketed it as ‘it’s actually extra money in your pocket since it’s tax-free). And then all companies started offering it. From a nice-to-have feature, it has now turned into a must-have feature in the pay package. Companies don’t make or lose any money on this transaction (apart from the administrative headache).
Retail Store: Initially, the retail store used to accept Sodexo coupons only for pure food item purchases. It was a pure sales/marketing tactic from thereon – to attract more customers and to wean away customers from other competing chains, they started accepting Sodexo coupons for anything and sundry (which apart from increased sales, also increased customer loyalty). Eventually, competitive destruction happened and the retail chains till Dec 31st, 2011 accepted Sodexo coupons for all purchases. They redeemed their Sodexo coupons with Sodexo for a 5% discount (and they used to receive cash only after 20-30 days after submitting the coupon; credit card companies credit the retail store within 24 hours usually). It’s almost become mandatory for retail chains to accept Sodexo, else they risked losing customers to other retail chains and very fast (the cornershop marwariwala lost his business this way, till of course he also started accepting Sodexo!). Of course, to cover up the lost 5%, people usually concur on the fact that retail stores usually mark up the prices of certain items (although this cannot be corroborated with any data available).
Sodexo: Who exactly is Sodexo? This link gives more information (and this one in more juicier detail), but in summary, Sodexo is a French multinational corporation Sodexo is one of the largest food services and facilities management companies in the world, with 380,000 employees, representing 130 nationalities, present on 34,000 sites in 80 countries. They are the biggest beneficiary in this transaction. Since this is almost like a parallel currency, they have to invest a lot of money upfront to get the govt. machinery working in passing certain laws. They make money in three ways:
a) They receive Rs.100/- worth of coupons, while give back only Rs. 95/- in cash, netting a straight 5% gain.
b) Sodexo coupons usually come with an expiry date (think of it as a currency with expiry date *shudder*). Once its expired, no retail store would accept it and it becomes null and void. However, Sodexo had already received the money from your Company when they issued the coupon (and hence a 100% profit!). There is a complex process through which you can get new coupons issued, but most people would not have the time or the patience to go through the process for getting the new coupons.
c) The biggest of them all. They get money at 0% interest. Have a look at the diagram once again. Day 1, they receive Rs. 100/-. Day 24-34, they give back Rs. 95/-. That is, they have had the money for a full 20-30 days without paying any interest. In fact, till the coupon is used, it is practically free money (and they can lend this money at interest, thereby making money).
So, if this was a win-win-win-win arrangement for all the folks involved, why did the retail store chains suddenly stop taking Sodexo coupons in lieu of items?
There is no clarity on what exactly happened, but here are the news items floating around -
a) They have increased the brokerage from 5% to 9%. That is, the retail chains used to get back Rs. 95/- of their money, but in the revised scenario, would get back Rs. 91/-. Already under pressure for margins, this was not acceptable by retail chains. Presumably, they formed a clique and stopped taking the coupons across the table.
b) The number of days in which cash conversion happens has gone up from 20 days to close to 60 days, thereby impacting the cash cycle of organizations
thereby, resulting in a clique where the retail chains have closed ranks and have decided to put up a fight with Sodexo – to i) reduce the brokerage rate below 5% (and they’ll eventually settle to the original 5% figure) and ii) reduce the cash conversion cycle (and settle back on the 20-30 day figure).
Sodexo certainly has to negotiate and accede to the demands of the retail chains, simply because without them, Sodexo ceases to exist. Retail chains will also join the negotiating table because they will have too much to lose (the corner stone marwariwallah is still accepting Sodexos, and more probably, there is always a possibility that one retail chain breaks away from the clique to grab customers quickly). All in all, this is bound to be a temporary situation (max of 1-2 months), and as usual, the employee is being inconvenienced for the greater good of the mankind or some such.
My personal opinion is that the entire Sodexo tamasha is not worth the administrative hassle that most companies undergo (the big IT firms have everything automated, but all other firms are not). Why not give Rs. 2200/- as a food perk straightaway as cash instead of this circuitous food coupon route? Or tax it at the minimum rate? This whole hassle could have been avoided. But then again, there are vested interests at play here and I am not even a micro-bit player in the rational minority. (As an aside, I always wondered about an active secondary market. For example, you get Rs. 2200/- worth of coupons and you save Rs. 600/- in tax. Which essentially means, you would be willing to sell the coupons for cash for anything above Rs. 1600/- thereby making a neat, tidy profit. I am almost sure this is illegal, but I just wonder!). Also, Sodexo coupons involve a lot of paper. They can shift to card based system (if at all this system has to exist) and save a lot of money (IT firms usually give out cards, but try using a card in any retail chain – nada for now!).
Disclosure: I don’t subscribe to Sodexo coupons. My wife does and hence have a vested interest liquidating the Sodexo vouchers 
P.S: I can also see a govt. conspiracy here Sodexo coupons out of circulation means Employees will not subscribe to them January end (or future months). Which means, more taxable income and which means, more taxes. Government #FTW 
P.P.S: I explained a scenario above where a Employee can technically make a profit by selling the coupons at a discount. One enterprising person actually tried to sell these coupons at a premium on an internet site. Why would anyone pay hard cash (say, Rs. 105/-) in exchange for Sodexo coupons (worth Rs. 100/-). Beats me. Not too sure what the guy who posted this was thinking though
Happy New Year!
So, we have finally arrived at a year where we kick the Mayans’ butt big time, eh?
Wish you all a happy and prosperous New Year!
It is pretty shocking how our minds work, isn’t it? Every January 1st, it’s almost as if there is a ‘refresh(F5)’ button in our head where we tend to forget all the sad moments of the previous year and look forward to the New Year with all the optimism, gutso, goals and resolutions (it’s just a change of date, created for our convenience, right?). Our brains are wired to look forward to a better future and with much reason – our future has always been better than the past – in terms of quality of living, in terms of technology, in terms of advancements in medicine and in almost everything that you look around you.
As always, on 1st of January, we are caught in the dance between hindsight and probability – of what could have been in 2011 and what would be possible in 2012.
2011 – A pretty significant year for me. I got married to a fantastic girl (and I’d boil it down to my blind good luck than anything else actually) and she has been an awesome partner (considering all my quirks, I’d pretty much admit it to her almost infinite patience in not slapping me yet). In other news, my career has not gone as I expected in 2011 (except for the last 2 months where there have been some fantastic learnings). If I don’t change tack quickly, there is a great possibility that I get stuck in the average. In yet other news, one close friend C has had a bundle of joy enter her home, another close friend D got married, another shaks moved away due to vagaries of fate. And travel I did this year – I visited one of the most beautiful cities in the world, Sydney (Part 1, Part 2) in the early part of the year (easily one of the highlights of my life), honeymooned in the spectacularly beautiful Mauritius and the awe-inspiring Dubai (whose travel posts I promised about 6 months back but never got to) and roamed around all the heritage tours that Karnataka Holidays threw at us. All in all, it’s been a pretty splendid year, career aside.
2012 – I have had some deep conversations with my closest friends towards the close of the year about my dilemma. Here’s my dilemma – I have done pretty much what I wanted to do by the time I turned 28 – personal life, professional life, travel you name it. I say that not with a hint of pride, but with a lot of regret. I had set some goals at 21 for the next 5-7 years and I have gone on to achieve every one of them. Yet, I made the cardinal mistake of not refreshing/adding to the goals I made up at 21 and hence pretty much stuck now (very foolish, if you ask me). One close friend boiled it down to my innate strength which could also be my biggest weakness: going by checklists. Yet another friend boiled it down to a mismatch between my ability and my ambitions. Another friend admired my creative ability but admonished me for operationalizing every creative bit, which restricted the range of my goals. It’s been a gut-wrenching exercise of listing down what I want to do for the next 5-7 years (and add on to the list every time one item is checked off) and I am not yet sure I have got a concrete list of to-do things. But I have an idea now. Some goals seem outrageously ambitious but the future looks bright, possible and achievable. So, 2012 is off to a good start.
Other broad goals, which I had already posted on my facebook page (which was in turn copied from my friend’s blog) include,
Walk less, Play more.
Watch less, Read more.
Tweet less, Write more.
Whine less, Do more.
Buy less, Eliminate more.
Plan less, Travel More.
Procrastinate less, Study more.
Indoors less, Outdoors more.
Heart less, Mind more.
Photograph less, Experience more.
Cynic less, Hopeful more.
And with that, I sign off with a favorite T.S.Eliot’s quote of mine,
For last year’s words belong to last year’s language
And next year’s words await another voice
And all shall be well and
All manner of things shall be well.
P.S: For people who are interested in the theory behind the end of Mayan calendar, this link would help you decipher it. Favorite links on movies for 2011 and 2012 follows.
Link to 10 best bollywood films of 2011
Link to 15 worst bollywood films of 2011
Link to 35 most anticipated movies of 2012
