Hotel Chocolat… an investment for chocolate lovers!
Let’s review this idea not for the specific investments shown (they are all sold) but for the concept. The idea is great because it cuts out middlemen so investors and borrowers enhance profits and enjoy the process because it is more specific and adapted to one’s lifestyle.
This idea may be one that helps you as an investor or as a person who wants to expand a business.
Exactly 11 years (August 28, 2001) this site posted a message making seven predictions of how business and investing would evolve. One of the seven predictions is below:
* Imagination Era Prediction #6: Values will be as or even more important than the economic value. Consumers will base their buying decisions on private internal values that will grow in importance. We can see this trend already developing. For example many businesses have already learned it is good business to now give part of their profits to some type of charity. Some businesses have become their values, such as the ice cream company, Ben & Jerry’s.. Such companies form a new corporate culture each expressing their values through the way they do business. Such firms express a set of values which states how the firm’s convictions differ from the norm. Consumers who imagine these convictions are good will buy from these firms because they feel this firm has the ecologically correct or wholesome values that match how they (the consumer) feels.
In the Imagination Era consumers will perceive these values to be of increasing importance and will increasingly follow their feelings even when their imaginings may be wrong. In the early stages of this era this may lead businesses to profess convictions that are not really felt simply to attract customers.
A money raising trend that started in the UK is an evolution growing from this concept of investing in values. The investments are called mini-bonds, but I like to call them lifestyle bonds because they are bonds issued by small, private companies that fill their financing needs through loyal customers.
The borrowers (the issuers of the bonds) are typically companies offering the bonds to their customers. This benefits both the borrower and the investor.
They have taken on some odd forms so far… some paying dividends in cash, others in goods such as chocolate, shaving cream or a mix.
This trend has been created for three reasons.
First, the shortage of lending by banks to small businesses has forced them to become creative.
The second reason behind the trend is the shortage of safe investments that pay any type of reasonable return.
The third factor is the high cost of capital-raising.
Essentially these bonds are an unsecured loans to a specific company.
This is similar to any bond. The difference is that the yields are higher than most bonds but they are not listed on any exchange so they cannot be sold. Liquidation only comes at maturity. In short you give up liquidity for yield.
Since businesses are offering them to customers there are sometimes fringe benefits.
Some examples are a 2009 offer by King of Shaves issue of three-year bonds in multiples of £1,000 paying 6 per cent a year, plus free shaving products for the duration of the term.
In 2010 Hotel Chocolat offered three-year bonds with equivalent yields of 6.72 per cent on investments of £2,000 or £4,000 respectively, but in the form of boxes of chocolate.
Hotel Chocolat, is a British chocolatier with over 6o stores in the United Kingdom, the USA, Europe and the Middle East.
This firm began in the 1980s selling chocolate mints and evolved into a Chocolate Tasting Club in Britain, which now has around 100,000 members. Each month the club sends a new selection of chocolates using only the best ingredients and no artificial colours.
Then the firm purchased its own cocoa plantation in St. Lucia and is the only company in the United Kingdom to grow cocoa on their own plantation. Plus they built a small hotel there and have numerous cabins.
John Lewis… an investment for shoppers.
A 2011, John Lewis bond offer provided a fixed coupon of 4.5 per cent in cash, with a further 2 per cent in gift vouchers for the stores.
I love shopping in John Lewis and millions of others do as well so this if a great deal for shoppers.
Perhaps the most recent mini bond issue was by the British boutique hotel guide and booking service, Mr & Mrs Smith. They raised £5m to “develop a family of sister brands”. The Smith Bond has a minimum subscription of £1,000, but no upper limit. These bonds mature in four years and pay a fixed-rate return of 7.5% paid bi annually.
Users of Mr & Mrs Smith’s services can instead receive their interest in ‘loyalty money’ redeemable against boutique hotels and houses around the world. This pushes the return to 9.5%.
Mr. & Mrs. Smith an investment for those who love luxury boutique hotels.
These bonds pay a higher yield but are not risk-free. First, the bonds are unsecured and are only as good as the company’s ability to pay the interest and redeem the bonds on maturity. You’ll only get your money back if the firm still exists when the bonds come due.
Perfect for Lifestyle
What makes sense about such bonds is they make three connections… customer as investor – borrower investor direct and – an investment fitted to a consumer’s lifestyle.
Who is more likely to be happy to support and enjoy an investment in a company than a happy customer? Also why pay the big underwriting fees usually charged on a typical bond offering? Finally does it not make more sense to have an investment that maximizes the spending you are actually going to do?
The other downside of course is that this only works when a business you use decides to raise money in this way and all the bonds mentioned above are filled. Nevertheless, we’ll keep an eye out for more. You should also!
Learn more about investing in bonds and how to finance a small business at our October Super Thinking + Business and Investing Seminar October 5-6-7.