🍔 The 401K Meal Plan
A history of France's favorite social benefit and the technology companies looking to bring it into the 21st century
👋🏼 Bonjour à tous! Article deux, coming in hot 🔥
On the surface, this looks like an essay about a government sponsored meal voucher program. Dig a little deeper and you get a whole lot of weird. You're in for a treat!
CAUTION: do not read if you are currently hungry. Please eat lunch and return to consuming this article!
Table of Contents:
L’Apéritif (Introduction) 🍸
Original “Cyn” : Brothels 💋 & Burgers 🍔
The 401K Meal Plan 💰
The Dinosaurs 🦕
More than just a payments company 💳
A hunger for more... 🍝
Ain't no such thing as a free Lunchr 🍽
The way to your employees’ hearts: their stomachs ❤️
An International Appetite 🌎
Le Digestif (Closing) 🥃
L'Apéritif
When I was negotiating contract terms with my first startup in Paris, we covered the standard subjects: salary, target compensation, expectations & KPIs, stock options, growth potential, perks (commuter benefits, team outings etc.). Finally, my future CEO mentioned, "oh yeah, and you'll have titres restos, so that's effectively a bonus." Restaurant tickets? I asked. I didn't realize it yet, but I had just been introduced to the French 401k: a state-sponsored lunch voucher scheme.
If you've ever worked a corporate gig in America, it's likely that you've come across a 401k plan. In fact, it was probably something pitched to you in the recruiting process or a perk to sweeten the deal. Though it may sound complicated or opaque (after all, it is named after a subsection of the Internal Revenue Code), it's fairly straight-forward. Quite simply, it's an employer sponsored retirement account. Typically, your employer agrees to match up to a certain percentage of your salary which is taken out of your paycheck pre-tax and deposited into an account (usually through some mutual fund) which you don't touch until retirement. It's at that point that you pay taxes on your earnings, the key advantage here being that your deferred income benefits from uninterrupted compound interest over your lifetime. Any savvy investor will vouch for that.
Original “Cyn” : Brothels & Burgers
You'll soon learn that restaurant tickets are incredibly common in France. But it wasn't always that way. The origin story involves a British brothel and a French fast-food fanatic (separately, although I think we could workshop a wild piece of fiction with these two protagonists).
The Luncheon Voucher was introduced in the UK after WWII when food rationing was still a requirement following the war efforts. The daily, tax-free 3 shilling voucher served as a subsidy for employees to eat at restaurants if they worked at a company that didn't provide a canteen. Company programs evolved over the decade, oftentimes making 1:1 deals with local restaurants to accept their vouchers. Eventually, an enterprising businessman named John Hack realized this was incredibly inefficient and launched a nationwide scheme to standardize the voucher. He created the Luncheon Vouchers Company in 1955 which became a currency in its own right, accepted as "legal tender" across the country. Nearly 3 decades later, "LVC" would be acquired by the major French hospitality company Accor, but that's for another essay.
The UK Lunch Voucher hit what might be it's peak cultural relevance in 1978 when police raided a home in South London following a "tip-off" about shady activity. Police discovered over 50 men lined up, some of whom were dressed in lingerie, including a who's who of priests, lawyers and politicians, all patiently waiting to see the thirteen prostitutes on the premises. The best part? Luncheon Vouchers were an accepted form of payment! Cynthia Payne, better known as "Madam Cyn," made front page news for the operation she was running out of her house. She ended up serving a reduced 4-month sentence and went on to live a fairly colorful life: running for parliament as a candidate for the "Payne and Pleasure" party (her own creation), making appearances as an after dinner speaker, and selling various adult products.
But the story really begins with a man named Jacques Borel. You don't have to watch too many YouTube clips of this guy to realize he's a salesman. He's brash, outspoken with just the right amount of bullshit to keep you engaged. He graduated from HEC Paris in 1950 and used Daddy's connections to get him a job at IBM in Saigon, Vietnam.
During the early 50's, Borel became convinced that progressive feminism would upend traditional family mealtime (i.e. women leaving the kitchen for the workforce) and in turn create opportunity for the restaurant industry: less food at home and disposable income to spend. So when he returned to France in 1956 (with a wife and two kids), he and his wife started their first venture: L'Auberge Express. He later opened up several Wimpy burger joints, a Chicago-based chain that he came across during an internship in New York City (thanks, Dad!). It appears American fast-food culture had an influence on him. The motto at his first restaurant was "12 customers per minute, or 1 every five seconds."
For better or worse, his burger chain took off. This was 11 years before a McDonalds franchise had landed in Paris, so quick-serve food was a novel concept. Despite being called "enemy number one" by media critics (and the French gastronomic community), he ended up with 20 franchises around the country and is largely credited with the concept of "rest-stop restaurants" — the fast food you see off highway exits.
If we rewind back to the beginning of Borel’s story, you'll remember that he wasn't always the French King of Fast Food, but a scrappy restaurateur trying to sell his vision to the Parisian everyman. Early on, he noticed that workers were consistently looking for somewhere to eat at lunch time since most companies lacked a cafeteria. A vigilant marketer, he capitalized on the opportunity to secure customers by handing out vouchers, in the form of old cinema ticket stubs, to the neighborhood construction crews. They paid up-front at a discount and Borel was guaranteed a client the next day. The system was a success! From that point on he made it his life's work to lobby the French government into adopting a universal meal ticket — something similar to what they had developed in the UK. And voila, the “Titre Restaurant” was born.
The 401K Meal Plan
His diligence paid off. Today, restaurant tickets are used on the order of 43 million per day worldwide. Obviously, the system has evolved from movie stubs to something more sophisticated. To understand it's latest incarnation, it's important to run through the mechanics of the system that was put in place, the government agencies involved, and the "players" in the market that enable it to function.
The marketplace for this "restaurant ticket economy" has four main actors:
The Employers
The Employees
The Restaurants
The Processors
And layered into all this is, of course, "The State" (i.e. the French government) and the National Commission of Titres Restaurants (CNTR). The policy in France was initiated as a nutritional program to ensure workers got their lunch break and a well-rounded meal. The companies, in turn, got tax incentives (also, it avoided the need to build and run a cafeteria). Presumably, it stimulated the local economy because direct spending from individuals was going to restaurants and shops near the office. Ultimately, however, the big winners were the "middlemen," in this case, the payment processors.
How does it work in practice?
Let's say I join a company that offers "titres resto" -- they can choose to pay for 50 - 60% of each ticket. If we return to the 401K analogy, they are basically matching my contribution. If there are 20 working days in a month, and I am entitled to €10 per day, my monthly ticket distribution would be €200. Half taken out of my salary (pre-tax) and half from the company itself (tax-free). This is where the "middlemen" come into play. We need an independent body who can issue the tickets and then compensate the restaurants when they exchange the tickets for cash (minus a fee, of course).
In the old days this was more complicated than you would think. Remember, this is pre-internet and for many decades, pre-credit card… So how did they keep track of all this monopoly money? Checkbooks.
From a logistical standpoint, this was a pain in the ass for everyone. If you lose your meal checks, NO SOUP FOR YOU! If you spend under the full amount of the ticket, you couldn't get change (which encouraged people to go over the limit and pay the rest in cash). If you own a restaurant, you have to keep all these tickets in a register and mail them to the processing organization for reconciliation. Then, wait... sometimes for weeks...to get paid. While the middlemen have up-front cash on hand, restaurants may encounter a cash flow problem. Have a look at this instructional video on how to get reimbursed if you own a restaurant that accepts tickets (*cringe*):
In spite of the structural challenges at play, the French public seemed to really like this benefit, so much so that it's become almost an expectation when joining a new company. So, regardless of the complications, it's no wonder people have built businesses around the public benefit. In fact, The numbers themselves are pretty telling — if you recall the 4 "market actors" above, here is a breakdown of how many participate:
The Employers 140K+
The Employees 3.8M+
The Restaurants 180K+
The Processors: 3 Major Players
That's a healthy chunk of business when you think about taking a percentage of the daily transactions of nearly 4 million people. And that's just the starting point — with the infrastructure put in place to service Titres Resto it's fairly straightforward to expand into other areas of these businesses (ear-marked payments, other employee benefits, mobility, childcare). And if you've mastered the model in France, why not go multi-national in regions where similar programs are in place? It turns out to be a pretty lucrative business, which is why the fourth and final "actor" (the processors) rushed in from the start and built scale businesses that were challenging to keep up with. Let's call them The Dinosaurs: they're enormous, roaming the planet unchallenged, but quite vulnerable to an unpredictable and earth-shattering event.
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The Dinosaurs
There are three main dinosaurs, all of whom have been around since the 60's. Today, their multinational businesses lie at the intersection of Food Service & Hospitality, Employee Benefits, and Payments. You'll notice they all have one thing in common: they were founded in the same decade as the Titres Resto program. It's safe to say that you can attribute a portion of their early success to helping make the markets for lunch vouchers at a time when payment processing wasn't instant and contactless. Each of them, in their own right, have grown to become dominant players in their space. But with massive growth and insatiable investors comes rigidity, process and narrow thinking. To understand the complexity (and bulk) these companies developed, I'll review one of them: Edenred.
More than just a payments company
This slide from their June 2021 Investor Report does a pretty good job of breaking down their business model. By and large, meal programs are their bread and butter, representing 61% of their overall business. But their service extends to other areas of employee perks like prepaid fuel cards, commuter benefits, incentive programs and well-being initiatives. Outside of the employee category, they have solutions for the "back office" as well: accounts payable, payroll, etc.
Roughly 20% of the deck is dedicated to virtue signaling around wellness, sustainability, and social progress in an effort to convince us that they are more than just a payments company. But if you look at their numbers (and product lines), it's exactly what they are. They help deal with some of the regulatory and logistical hurdles, slap the word "ticket" on their logo, and it's off to the races. In 2020, they reported €640M of free cash flow. And because much of their business is in ear-marked payments (read: pre-paid), we can attribute a non-trivial amount of that to what the insurance industry calls float.
Insurers receive premiums upfront and pay claims later. ... This collect-now, pay-later model leaves us holding large sums -- money we call "float" — that will eventually go to others. Meanwhile, we get to invest this float for [our] benefit. …
— Warren Buffet, Berkshire Hathaway
In short, they have millions of euros in interest-free loans they can use to invest in whatever they want (as long as they can forecast their cash flow properly). They are playing all sides of the market: charging the vendors (restaurants), charging the companies (for their services), productizing their expertise in payments for yet another set of B2B customers. All the while, they've created affiliate networks (2M merchants, 1M restaurants) giving them pricing power. These figures give the impression that they are unstoppable.
Edenred is a well-oiled machine. What could possibly pose a threat? As they say, "where there's float, there's bloat" (no one says that… I couldn't help myself, the rhyme was too good). Not only do they have heavy cash flow, Edenred is heavy in every respect: headcount, geography, operations, you name it. They've got 10K employees in 46 countries and 850K corporate customers. I realize that statement sounds like a net-positive, but think about it… Each region has a distinct set of rules and regulations for employee benefits (overhead), most of their customers are considered "enterprise" (typically slow, demanding and time-intensive); in fact, they've penetrated less than 10% of the small-to-medium businesses in the regions where they operate. Not to mention, they still issue paper tickets. Payments and Fintech have accelerated at a rapid clip in the past decade, so it's understandable that a company started in the 60's might end up face-to-face with the innovator's dilemma in the Internet Age.
Much like prehistoric dinosaurs, companies such as Edenred (et al) didn't see the comet coming. A comet of disruption, not destruction.
A hunger for more...
Lunchtime at work (pause déjeuner) is sacred in France. It's practically illegal to eat at your desk in front of your computer. I tried once and was harassed by my colleagues to carry my to-go box into the kitchen and join them. At first, I was irritated by the emphasis on meal-time with peers, hardened by the pure efficiency of American late-capitalism. Yet slowly, I began to appreciate the tradition. It's a moment to relax, reset, and enjoy the company of your co-workers; it's also an opportunity to exercise the great French tradition of discussing the quality of your food (whether brought from home or purchased at a neighborhood eatery). There were times the dining table discussion felt like the set of Iron Chef. There's a real ritual to it that's central to the sense of belonging at work here in France.
That sense of belonging is what was lacking, according to Loïc Soubeyrand, at his previous company, Teads: a pioneer in native video advertising that later sold for €300M. With that price tag, it's obvious that Soubeyrand nailed the product, but culture is something, upon reflection, he wishes he'd worked harder to build. So instead of retiring at the age of 30 (I wouldn't blame him…), he set out to create a company that would unlock true connections at work.
Soubeyrand’s early research aimed to find "micro-moments" of happiness at the office. As it turns out, pause déjeuner made the top of the list. It was settled, he would build a prototype to pair colleagues for lunch at a neighborhood restaurant (sort of like the random coffee machine plug-in for Slack). He would call it: Lunchr. Interestingly, user feedback indicated a key point of friction: the ability (or lack thereof) to pay for meals with titres resto. It became a blocking point for product development and the more he looked into it, the more he uncovered the antiquated, inefficient system holding this massive public benefit together. In order to move forward, he would need to take a slight detour: rebuild titres resto from scratch. With his market study complete, he devised a plan for the 21st century meal card with these characteristics:
Digital-First: A combination physical credit card & mobile app to avoid the hassle and environmental impact of paper tickets.
Universally Accepted: Instead of relying on and managing a private affiliate network, they could use Mastercard's pre-existing network to ensure it would be accepted almost everywhere. This strategy was also a masterclass on growth hacking — they now have a heat map of restaurants around the country where a high density of Swile card members are spending money. Hot lunches = hot leads for the sales team to call and pitch their affiliate program!
Value-Added Software for Restaurants: Theoretically, the main value driver of participating in the Edenred or Sodexo network is that it "drives traffic" to your restaurant. While this may be true, it's hard to quantify and as literally 1 in a million restaurant partners, it's unclear if this is a real differentiator. To remedy this, they built back office tools that integrate with point of sale systems and provide data visualization. They also help with marketing efforts. Any restaurant can accept the card, affiliates get additional perks.
Timely Reimbursements: Affiliate restaurants are paid out in under 48 hours, guaranteed. They even get visibility into cash flow directly within the system. No more trips to the post office and hoping for that check in the mail!
Ain't no such thing as a free Lunchr
It was a success. What was meant to solve a problem impeding progress on the product, became the product itself. During the implementation phase, they learned a lot. They collaborated with HR teams, onboarded new users, and uncovered the rules of the road governing France's favorite public benefit. To highlight some of the arbitrary rules: no purchases on Sundays, yes to fruits, vegetables and prepared food, no to alcohol and certain desserts (if I listed them all here I would double my word count). Just like the dinosaurs, they saw opportunity in areas outside of meal tickets: bonuses, funds for team events, back to school entitlements — there were endless programs like this typically handled with a separate process. Perhaps they could bake it all into one card.
There was just one problem: the name. If they were going to build products dedicated to the full suite of employee perks, they needed a name that conveyed this new mission. Coming back to the original premise — finding happiness at work — they combined Smile + Work to get Swile.
The way to your employees’ hearts: their stomachs
Run a quick search on "employee engagement software" and you'll find a plethora of B2B SaaS companies offering up their solution to make your employees more productive, satisfied, enlightened, collaborative [fill in the blank with your choice word here]. In my experience, they tend to be pretty one-dimensional and don't work well as a standalone product. Going into a separate system to publicly "thank" your colleague is just a bit much. Which is why Swile's expansion (albeit unplanned) into the realm of Human Resources and Employee Engagement may have just cracked the code to the age-old problem.
Having worked with HR teams in their customer base to get the meal ticket features up and running, they had pre-existing relationships they could exploit. And thanks to the mobile app, it was relatively easy to tack on additional features for end-users based on their feedback. Here's a great user story:
[PROBLEM] €19 daily spending limit caused payment rejections (maybe you were treating yourself to a Michelin star lunch or simply shopping for groceries, which is permitted)
[SOLUTION] Enable a personal account to make up the difference in cases where you overspend
[ACTION] Swile implements the "Top Up" feature where you can link your bank account and seamlessly pay anything over the limit from those funds in a single transaction (reconciliation is done behind the scenes)
This feature helped catalyze regular engagement with the app: adding funds and checking your balance was at least a monthly habit. User analytics suggested an opportunity: what if this could be an entry point for HR to check-in with employees through surveys or social tools? They ended up acquiring Briq, a small employee-oriented social tool to do just that. Now, they've got in-app birthday announcements, events management (think: happy hours), discussion threads and surveys in the pocket of each and every employee using the meal card. Everything was coming into place, but if Swile wanted to maintain growth, inevitably, it would need to expand beyond borders.
An International Appetite
There are two factors that determine the addressable market, according to Swile's Samuel Soares, Head of International Marketing: culture and labor laws. Culture refers to the emphasis on meal time (as opposed to the American tradition of one hand with a sandwich, the other on your mouse). As it turns out, European and particularly Latin cultures tend to meet this standard. Labor Laws are a key indicator simply because they dictate whether or not there are rules in place to support workers. France, for example, has notoriously strict labor laws which is in part responsible for the support of a program like titres resto.
Soares' market research indicated high potential in Brazil, Mexico, Spain, Italy, Germany, and Romania. Brazil (his home country) appears to be their next target. In fact, they just performed an M&A with Vee Beneficios, the Brazilian Swile, to accelerate their entry into this territory. Their team of 100 already has the customer-base, domain expertise and infrastructure to help them accelerate to market within the region and beyond.
Before my discussion with Soares, I was reflecting on the enormous cash reserves of the dinosaurs. With a mobile-first approach, top-up features, and direct connections to HR teams around the world, was it possible that Swile could become the employee "neo-bank" of the future? Saores quickly dismissed my hypothesis: Swile is laser-focused on employee benefits, not productivity or collaboration tools nor personal banking. And it's probably for the best, they've got quite enough on their plate for the moment.
Le Digestif
I should mention that Swile isn't the only contender here, but they're certainly the most visible. With a total of €114M in funding and a funny (and self-deprecating) public ad campaign they've managed to take the market by storm. Earlier this year, Swile managed to convince Carrefour, France's biggest private employer, to switch from Edenred to their platform.
I found a few modern competitors. One, Worklife (ex-Yoopies — pivoting is trendy in the space I guess), rebranded from a home-services company to focus on employee benefits in Europe and Asia. By all accounts, their product looks pretty good; they just haven't seemed to make as much noise as Swile. You've also got Resto Flash and Wedoofood, both of which seem to have relatively narrow scope: digitizing the French paper meal tickets. Admirable, but unlikely to go international.
One thing is clear: the dinosaurs have taken notice of the emerging threat. Labeled a "cartel" and slapped with a €414 million euro fine, their anti-competitive behavior was a direct response to incoming digital first companies like Swile. Included in the cartel was Apetiz. Created by Natixis, a French investment bank with €734B AUM. To be honest, it looks a bit like a front to get in on the action due to their expertise in payments (I've heard mixed feelings about their offering from people who have the card).
There you have it. From meal tickets to revolutionizing employee engagement and human resources. Without a doubt, this particular market was ripe for disruption and we're still in the early innings. All this talk about food is making me hungry. Maybe I'll move my operations to Spain so I can normalize my daily siesta!
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