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Tuesday, 3 August 2010

What Goodwill can REALLY be worth

Our last article back in March in the Exceeding Expectations section of our Excellence Quartet blog was about “Goodwill”, the difficulties of putting a value on it and the consequences if you get this valuation wrong.

In July in our “Capitalism or … Commonsense” section we wrote about how if you can do all the right things and you do them really well one of the results will be superior profitability and returns for shareholders.

In this article we bring these two ideas together in a story about how one business discovered just how much the goodwill they had created through doing all the right things and doing them really well could be worth.

This is the story of Hotel Chocolat and its “Chocolate Bond”.

For those of you that don’t have a sweet tooth and may not have heard of Hotel Chocolat they are a producer and retailer of top quality, exclusive chocolate.

From the start the founders, Angus Thirwell and Peter Harris were determined to do the right things and to do them really well. For them this included being brazenly committed to producing only authentic chocolate using only authentic wholesome ingredients. It also included their policy of “engaged ethics”. This not only involves paying their cocoa farmer suppliers above the world market rate but also being directly involved in helping them improve their own, their families’ and communities’ lives and futures.

The result of all this is that over the 15 years since they were founded they have grown sales to £52m and have over 500 employees, a success story by any comparison.

Earlier this year they decided to raise some capital to invest in further growth. To find this investment they did not go to the banks, the stock markets, venture capitalists or even a rich Aunty … they went to their customers.

Hotel Chocolat has over 100,000 customers registered as members of their Tasting Club. So they not only know where to find them but they also know their taste in chocolate and have carefully nurtured their enthusiasm for their products and company. These customers were offered the opportunity to buy “Chocolate Bonds” redeemable in full in 3 years and paying interest in … chocolate! This was equivalent to an interest rate of over 6% if paid in cash.

The bond issue was approved by the FSA and raised £3.7m. This will be used to expand Hotel Chocolat’s UK factory and invest in facilities in their wholly owned cocoa plantation in St Lucia. They believe up to 250 new jobs will be created.

The Chocolate Bond was an innovative idea but without the goodwill that had been built through doing all the right things really well it would never have delivered any value.

If you would like to find out what doing the right things and doing them really well could do for the value of your business why not take some time to talk to us. Call Steve Goodman on 07802 385586 or Tony Ericson on 07973 138253.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the concept of Excellence as the key to prosperity. Each article uses a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques.