If you like this content, consider subscribing to the website, or follow my LinkedIn and Medium.

---

Gong Xi Fa Cai, and Happy Chinese New Year! The year of the dragon is here. And many Chinese in Malaysia have had their reunion dinners and other get-together meals. I know because I have gained 2 kgs just from eating this week.

However, have you ever wondered why Chinese restaurants always offer set meals that cost up to RM150 per person? I know I did, when I asked the restaurant can I order a la carte instead of the set meals. Almost all of them declined. Only one told me that I could order a la carte if I took the set also (way to upsell me).

Before you jump in and say “These restaurants are just trying to force the consumer to pay more on Chinese New Year”, there’s quite an elaborate set of economics that is happening behind the scenes. Let’s take a look then!

Let’s start with the demand

Abundance. That will be how I describe the demand for food during Chinese New Year. Every family will have their preferences but generally, these are the foods that are in demand:

1. Pork
2. Chicken
3. Fish (Expensive Ones)
4. Prawn
5. Abalone
6. Mushroom (Expensive Ones)

And they will all come in one meal. The volume? Large! Every family will try to host their relatives once for Chinese New Year meals. Throughout my one week, I have had 6 meals in restaurants.

Hence, demand for set meals is high during this period. Because of this, these food product prices are through the roof in the markets.

Restaurants buy them all in bulk. And they need to ensure that they are fresh. So, suppliers normally charge a higher price due to the overwhelming demand.

And when these suppliers close during the Chinese New Year, lesser supply means that open suppliers will also charge a higher price.

Not only is demand high but there is a reduction in supply to the market.

More depth into the supply situation

Many suppliers who are Chinese will normally take the week off for the Chinese New Year. And this strains the supply chain for every product related to the festival.

Many restaurants will stock up on food materials before Chinese New Year, but they probably won’t last past the 3^rd day. This is because storage is limited and customers demand fresh materials.

Past that day, most Chinese businesses are closed. And this includes the retailer, wholesaler, vegetable and poultry farmer, and even logistics.

What happens when the supply chain is disrupted? Prices rise, and the quantity supplied decreases. Restaurants have to compete to get raw food materials from a limited supply, and that means they bid higher prices for them.

For restaurants that don’t have these food offerings, most customers won’t even bother to come. After all, the customer is king. And restaurants know this.

Set meals have higher profit margins

There are two factors at play here.

One, most of these are Chinese restaurants, and the people working there are sacrificing the time that they could spend with their families and relatives. So, they need to be compensated for this, and consumers pay a higher price for their services.

Two, the prep work and skills needed to cook the complicated dishes are much higher. In normal times, consumers won’t demand for these dishes. But they do in Chinese New Year. And consumers are much more ‘giving’.

Restaurants will probably close after the Chinese New Year

Many Chinese restaurants that opened for the 2 weeks of Chinese New Year, will probably close for a week after that. After all, they also need to celebrate. They just chose to do it after.

So, they need to make enough also during that period to make up for the time they are closed. And because they have limited capacity, it makes sense to sell higher margin set meals.

After all, they still need to pay for rent and worker salaries during the time they are off. They need to ensure that their revenue is smoothed out during this time.

Conclusion

Going through the Chinese New Year has been eye-opening for me. The economics make sense for many Chinese restaurants offering higher-priced meals.

Consumers want it although it’s more expensive. But you also need to look at how these restaurants are sourcing their materials when many suppliers are closed, and smoothing out their revenue.

Happy Chinese New Year, everyone!