With the mid-Autumn festival just a few days away, one would expect traditional mooncake makers in China to be over the moon at this time of the year. But as it turns out, the reality is something quite different.
Traditional mooncake makers normally finance their operations by issuing mooncake coupons well before they actually manufacture them. But the practice has lost shine this year as demand has faltered due to Beijing’s austerity and ant-graft campaign. Meanwhile, firms have to compete with new foreign entities which offer fresh mooncake flavors to attract the younger customers.
How do manufacturers finance through issuing mooncake coupons?
First of all, there are two things we should know. Mooncake coupons are sold one to two months prior to the festival; the value of mooncake coupon will drop as the festival approaches.
The business works like this: a mooncake maker normally issues coupons a little more than the actual demand. Say if the maker expects that demand would be around 1,800 boxes, he will issue 2,000 mooncake coupons.
Mooncake makers gain from such practice in two ways. First, they can receive cash in advance to finance the production. Second, out of experience, some of the coupon owners would choose to trade the coupon away instead of redeeming it.
And the value of these coupons has only one way to go — down, because nobody will want a box of mooncake when the festival is over. The maker will then buy them back at a deep discount to pocket the difference, much like covering a short position.
However, the demand for mooncake coupons has dropped significantly as mainland authorities are firmly implementing the anti-graft directives. Large state-owned enterprises have squeezed their gifts expenditure during the mid-Autumn festival.
A mooncake coupon scalper from Fujian told National Business Daily that its business has slumped since last year. “Last year, I bought and resold 1,000 coupons from the market a month before the mid-Autumn festival, but this year the figure has dropped to 700.”
Moreover, traditional mooncake brands are facing fierce competition from foreign players such as ice cream brand Häagen-Dazs and coffee shop chain Starbucks. The new players have attracted a lot of young customers who are more willing to try on new style mooncake.
They have brought new practices into the industry. Some of the new players allowed customers to exchange mooncake coupons for other goods under the same brand if they don’t want another box of mooncake.
They have also extended the trading period of these mooncake coupons. For example, some players have started to sell mooncake and coupons as early as June, and those coupons won’t expire until a month after the festival, which makes them a lot like cash rather than just mooncake coupons.
Such moves have stabilized the value of these coupons, and customers are more likely to buy and keep them, giving traditional mooncake makers a one-two punch on their coupon finance business.
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