Bond markets in everything

by on May 26, 2010 at 10:46 am in Economics, Food and Drink | Permalink

British high-end chocolate maker and retailer Hotel Chocolat, which currently operates over 40 stores in the UK, the Middle East and the US, wants to expand even further. But rather than turning to banks or big investors for money, they're inviting customer to buy bonds. Bonds that will pay chocolate returns.

Two values of Chocolate Bond will be issued: both with the return paid in monthly Tasting Boxes. Holders of a GBP 2,000 Chocolate Bond will receive six free tasting boxes a year worth GBP 107.70 per year, and those holding a GBP 4,000 bond will receive thirteen boxes, worth GBP 233.35 per year. Which comes down to a 5.38% return. After an initial term of three years, and on every anniversary thereafter, bond holders can redeem their bond for a full return of their investment. If they decide to continue to hold the bond, the monthly boxes will keep on coming.

The link is here and hat tip goes to Eric John Barker.

Grant Gould May 26, 2010 at 10:55 am

My favourite bookstore financed a difficult relocation by selling bonds that paid in gift certificates (buy a $100 bond, get a $10 gift certificate each month for a year). It was quite popular and successful, but they did not repeat the offering for future big expenses because it gave their accountant (and accounting and PoS software) fits.

Phil May 26, 2010 at 11:06 am

Would the chocolate-denominated interest payment tax-free in the US?

Bill May 26, 2010 at 11:38 am

In addition to a bond aspects of the proposal, the instrument is a bet on the future of chocolate prices.

Looks like, if the seller is making this proposal to sell chocolate at a fixed future price, he must be thinking the price of chocolate has peaked. This tells me one should sell chocolate nibs short and buy chocolate gold medallions.

Bill May 26, 2010 at 1:01 pm

It is interesting how persons have approached this as a finance problem, and not a marketing program.

This is really not a financing program, but rather a loyalty discount and committed purchase program.

Think of it as paying up front for an item; or think of it as buying that item at a discount if you purchase something else first: like the Barnes and Noble card that I pay $35 for that gives me a discount when I purchase books from B&N.

Or, think of the non-interest bearing alternative: that gift card you purchased or the unused balance in you ITunes account.

Phil May 26, 2010 at 2:30 pm

Yes, I was serious about the tax question. I suspect the return is taxable. If it weren’t, everyone would do that: lend Ford $1,000,000 and get a car as your first year’s interest. Lend Pulte Homes $1,000,000 and get free luxury home rent. And so on.

Tom Grey May 26, 2010 at 7:53 pm

Greece should pay all its domestic bills (pensions, salaries) in bonds, redeemable at 100% par value in tax payments and all other gov’t collection fees.

The chocolate bonds sound far more interest-ing.

Master of None May 27, 2010 at 8:34 am

This is a brilliant form of issuing perfectly-matched inflation-protected debt.

The other day I was wondering why gold miners don’t issue debt denominated in ounces of gold. That would help shift the risk onto the debtholders (and it would also allow for some interesting analysis vis a vis the “value” of gold implied by the interest rate on that debt).

anonymous May 27, 2010 at 1:47 pm

Reason why more companies don’t do this is – at least in US – is because it probably violates all sorts of securities laws. Complying with the securities laws makes these kind of things prohibitively expensive.

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