The sweet success of Hotel Chocolat’s return on investment

Posted on: June 18th, 2014

The credit crunch has undoubtedly resulted in businesses finding alternative means of funding. The Internet-based crowdfunding phenomenon is well documented, with the likes of Nicola Horlick, the controversial fund manager dubbed ‘Superwoman’ in the Nineties as she juggled a top City job with the demands of a large family. She set up a company on the back of the crowdfunding success and raised £150,000 for full finance company Glenthan Capital in just 22 hours.

When it comes to finding an alternative to bank funding, it seems the market has no lack of imagination. The fast-growing luxury chocolate manufacturer and retailer Hotel Chocolat has recently launched a bond issue, using its own loyalty membership scheme, Hotel Chocolat Tasting Club, as a vehicle to approach investors.

What’s more, this is not the first time the company has used this method to use its customer base for financial support. This is a second bond issue and, according to Hotel Chocolat, less than seven per cent of bond holders from the previous issue (which raised £4m) have cashed in their bonds in the two years since they’ve been free to do so. Instead they are continuing to invest.

The interesting point is that the return or interest on the bond is in fact paid in chocolate or chocolate vouchers – how good is that! With returns of up to 7.33 per cent, the cleverness here is that through its customer loyalty club it has a readily identified and reliable database which is in a position to invest up to £50,000 in the company with no cash return.

Clearly, its customer demographic is not typical for the nation but it does shed light on just how useful customer loyalty clubs and memberships can be in terms of reaching potential investors. By being members of the club, potentially interested investors have already shown a brand loyalty and it is not difficult to see how other companies with a loyal membership could replicate this successful initiative.

Of course, the bond issue is heavily regulated in terms of the prospectus sent out to members to entice them to invest… but then the company has a strong track record of encouraging customer indulgence!

Hotel Chocolat still has to stick to the rules, by deducting 20 per cent tax from the value of the ‘chocolate interest’. Wouldn’t it be great to see chunks of chocolate being sent direct to HM Revenue & Customs to represent the tax deduction!

The more subtle and clever point though is that Hotel Chocolat’s organic growth through its customer funding entirely mirrors the company’s ethos of supporting organic cocoa bean farmers. It’s a glowing example which others may now follow.