Struggling with Meaninglessness

searching meaning in meaninglessness

Archive for September 2011

The unforeseen potential bubble in Malaysia.

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1. When I was in college, I was quite fascinated when i first learned about the news of dotcom bubble bust. There were plenty of hoo-haa and the global economic landscape were looking pretty grim during that period. Yet, I do not have the complete idea of how exactly bubble bust work and what caused the bubble. Soon, i heard many other different bubbles too  like … stock bubble, property bubble, gold bubble, etc. etc. What’s obvious to me was that it seems everything which has to do with investment and money are somewhat related to … bubble.  It took me quite a while to kinda figure out the whole concept of this bubble bubble thingy. And when I did, it changed the way of how I look at Supply & Demand forever. Supply & Demand is not just one of those hundreds of not-so-practical theories we learn in economic classes. Supply & Demand is actually the fundamental of everything economics.  And if there’s one big take-away, I learned that economic bubble collapse is actually directly related to Supply & Demand.

2. I am really a simple guy. When I was in school, every meal costs only around RM3 or RM4. That was because i spent most of my time eating in cheap Chinese restaurants. When I was in college, the spending for each meal increased to around RM5 to RM7. Around 50% increase compared to my school days. I was still mostly eating at the same cheap Chinese restaurants, and occasionally at fast food restaurants and some mid-end cafe while hanging out at shopping malls. The few ringgit increase of expenditure is understandable. Inflation, that’s what we call it.

3. It has already been 3-4 years ago since I’ve started working. Now, my meal cost around RM10 on average  …. 100% increase from my college days and around 300% increase from my school days. In a typical week, I spend around 30% of my time eating at mid-end restaurants and the rest of my time eating at same cheap Chinese restaurants. Some of my friends could spend up to around RM20 per meal on average, especially those who frequent mid-end restaurants.

4.  Now the question – why does my spending on food increased so rapidly within the time span of the last 10 years? I am certainly not eating more, but I’m surely paying more and more for food. Here’s why – the increase of disposable income – I can now have the luxury to dine at mid-end restaurants more frequent than ever before. With the increase of disposable income among urban dwellers in Malaysia, suddenly, food is no longer a necessity. Food is a luxury to many. More and more of us are subscribing to the philosophy of  living to eat instead of eating to live. Food which are not tastily cooked is now one of the biggest crime to humanity (Yea. First world problems…..)

5. If we strictly look at this whole picture from a Supply & Demand point of view, it’s quite simple really. People now have more income and disposable income, hence the increase of demand for quality food, and high expectations on quality environment and quality service from restaurants. We think we deserve them because we can afford it. Naturally, more aspiring entrepreneurs will see this opportunity to invest and ‘supply’ in mid-end to high-end restaurants to meet the demand of good restaurants and good food from people. Plus, the profit margin for mid-restaurant is really good too.  When there’s an abundance of demand of mid-class restaurants, rest assured there will be influx of supply to meet them. (Because money is the prime motivation for many people in this free market system)

6. Many years ago, when Starbucks just got started in Malaysia, I thought – who the hell will pay RM7 for a cup of coffee? This sum of money can buy me a meal already! But not only I was wrong, in fact, Starbucks mushroomed like crazy year by year in Malaysia. Now, after all these years, a cup of Mocha Ice Blended cost almost RM13, and it is showing no signs of slowing down. How can this coffee shop can get away with crazy price tag of RM13 for a cup of coffee? Very simple – the power of Demand due to having huge disposable income.

7.  Recently, I was observing more on this new economic trend in eatery business. I was driving around SS2 and Damansara Uptown areas, and took some good time to observe around. What I noticed was many low-end Chinese restaurants have died off one by one and gradually replaced by mid-end restaurants. It’s safe to estimate that now, we have more mid-end restaurants around Petaling Jaya then low-end restaurants (i estimate). So, what does this tell us?

  • On one hand, I think this is great because it is signalling the prosperity of our country’s economy ….. sort of like evolution – Low-end restaurants evolved or died off and replaced by mid-end restaurants because the environment allows it to happen (higher income society). From eatery business perspective, we have moved ourselves up to a higher level of status. We all can afford quality food and service now.
  • But on the other hand, I’m not sure if this is just some mindless trend or fad. Maybe the income of most Malaysians didn’t really increase at all.  It is more of like .. there are many people eating at mid-end restaurants, so it’s not cool anymore to eat at low-end restaurants … and people just pay for the hefty price tag even if they are broke just for the sake of acting as though they can afford to eat good food (status/peer pressure).

8. I’m no economist. I do not have any data or analyst skills to know what’s the REAL reason low-end restaurants are dying off and rapidly replaced by mid-end restaurants. Nor do I know what will happen to Malaysia’s economy in the next 10 years.  Maybe we will continue to prosper. Or perhaps we will meet with a bad recession and economic downturn in the next few years. I don’t know. But one thing which I will dare to predict is… if Malaysia, touch wood, to get hit by a very bad recession, i foresee the collapse of many mid-end restaurants simply because Malaysian disposable income will drop, hence food will not be treated as luxury anymore during that period. People will start to see the pain of spending RM13-RM14 for a cup of coffee or for a set of meal.

9.  When an economist give a forecast that there are more Supply than Demand in a particular market, that’s how they will declare it to be a bubble. And when this high supply, low demand forecast slowly kick in as reality, then that’s when bubble bust will happen. I think mid-end restaurants are growing quite uncontrollably around Petaling Jaya. Many entrepreneurs have jumped in to this mid-end restaurant boat to ride this high disposable income wave together. It’s great if Malaysians continue to have high disposable income to sustain this demand, but if it ever comes the day when the boat is crushed by underwhelming demand, I think, it will sink pretty bad.

Written by elan85

September 16, 2011 at 5:02 pm

Posted in Economics