The morning started with a long walk to Kivu Noir, a high end coffee shop here in Kigali. Over my breakfast and coffee I started philosophizing about economics and life. I was taken a back by such a high end establishment here in Rwanda, overlooking the hills with a chic vibe. This is just one of many places like this in Kigali. There are actually so many boujee restaurants and housing options. I asked a local where everyone made their money and she said agriculture and manufacturing. It is obvious Rwanda has a youthful, growing middle class, eager to spend money on nicer things. The age of the population and size of the middle class and its growth rate are key characteristics when thinking about investing. This ideas made me think of an economic principle proposed by my dear friend Zachary Katz, may he be released from Kenya detention immediately. The idea is gravity economics, a theoretical framework in economics positing that wealth concentration and consumption patterns among high-income individuals, particularly the aristocracy or economic elite, exert a gravitational pull on market structures, resource allocation, and profit maximization strategies. The principle asserts that catering to this demographic yields disproportionately higher returns due to their substantial purchasing power, propensity for conspicuous consumption, and influence over market trends and cultural preferences. This principle could be seen here in Kigali at the coffee shop in action. Also the other day talking with Matt we spitballed more ideas relating to this principle. We talked about a luxury car rental service here in Rwanda. People are spending thousands of dollars to go trek with the Gorillas, so they are more than willing to pay a couple extra dollars to be driven in luxury. He is also doing a $100,000 renovation to his restaurant to give a more upscale vibe. He even told me he can sell Clase Azul bottles for over $1,000 here, bought for $120 in South Africa. Overall, marketing to the aristocracy who are more willing to consume and at higher margins is a better strategy than marketing a business towards the lower and lower-middle class. Therefore when more young people in a place are entering into the middle class, they are very eager to spend money like they are rich. Another interesting thing I learned is that alcohol margins are some of the best, while coffee is some of the worst. You can spend 5 dollars at a coffee shop and sit there all day. However if you are at a bar ordering 2-3 drinks and staying for a while, much more money will be spent.
