Tuesday, January 17, 2012
Why retailers dont accept Sodexo Coupons
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!
So, 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 shopkeepers is still accepting Sodexo, 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.