Cupcakonomics in Kenya
WHY YOU SHOULD CARE
Nairobi’s first cupcake shop demonstrates the power of a rising consumer class — and teaches a lesson about labor in emerging economies, too.
If anyone needed more evidence that Kenya’s economy is on the rise, a sort of confirmation arrived recently — in buttercream and a half dozen flavors that change daily.
Sugarpie Cupcakes in Nairobi has won plenty of fans and local press, attesting to this city’s changing tastes. The expats tend to favor Belgian chocolate, while the Kenyans prefer chai or red velvet, but overall sales have grown fast since the business launched late last year.
Running the business is no cakewalk — but its vagaries and workarounds reveal a lot about Nairobi’s consumerist aspirations, and the economics that underlie them. A rising number of middle-upper-income Kenyans sees cupcakes as one of many small luxuries they can afford. And some among Kenya’s large, (non)working class see that as something to aspire to.
In Nairobi, it’s cheaper to hire two people to deliver $17 worth of cupcakes than to deliver them any other way.
For lower income Kenyans, businesses like Sugarpie offer work. Like nearly every other food establishment in the city, Sugarpie delivers (customers gladly pay a small fee to avoid heading out into traffic themselves). With wages lower than delivery costs, Sugarpie was able to tackle a tricky problem that was key to growing its business: delivering its sweet treats — intact — to restaurants and individuals throughout a very busy, very bumpy city.
Traffic is so intense that a standard delivery could take hours by car, burning costly fuel. Which is why Sugarpie delivers its goodies the developing-world way: via motorcycles, which can weave in and out of traffic, burning about one-third the gas of a car.
But Nairobi’s streets are peppered with potholes and thousands of (maddeningly unnecessary) speed bumps. When the bike hits them, the cupcake flips in its box, or bounces so that the frosting smashes on the top.
“It makes me sad to see them smushed — emotionally and otherwise,” founder Sandra Zhao laments.
Sugarpie tried to solve the problem with better boxes (Zhao’s Stanford mechanical engineering alum boyfriend tried designing cardboard platforms with circle cutouts) and experimenting with bike positioning (to soften engine vibration and avoid potentially catastrophic engine heat). But the best solution to keeping the cakes in pristine condition came in human form.
Kenya’s economy is growing faster than any in the region, so why are people still willing to work for pennies on the hour?
In Nairobi, it’s cheaper to hire two people to deliver $17 worth of cupcakes than to deliver them any other way. So Zhao hired a second person to ride on the back of the motorcycle and hold the cupcakes steady.
She pays a 21-year-old woman 100 shillings ($1.16 US) per delivery, although she says she could get away with paying half that.
I’ve had a hard time wrapping my head around this fact: Kenya’s economy is growing faster than any other country’s in the region. The nearly 1 million public-sector workers here earn such high wages that that their salaries and benefits consume half of the country’s tax revenue.
Why, then, is it still so easy to find people willing to work for pennies on the hour?
One explanation can be found in a term economists call employment elasticity: a measure of how well GDP growth translates into job growth. In the late 1990s, employment in Kenya rose 1.77 percentage points for every 1-point increase in GDP. Employment was highly elastic. But more recently, employment has grown at only one-third that rate. High population growth has widened the pool of labor, but productivity growth hasn’t kept up.
Sugarpie is where the desires of the working class and of the consumer class collide.
And so, even as Kenya’s GDP growth holds steady around 4 to 5 percent per year, far too few Kenyans are finding work. As a 2013 report puts it, “Relatively strong economic growth since 2003 may not have translated into meaningful improvement in the quality of jobs created.” By some estimates, 70 percent of Kenya’s working-age youth lack employment.
This creates a paradox: Many Kenyans are willing to work for low wages even in a city whose upper-middle class appears to be growing rapidly, judging by the proliferation of shopping malls and specialty boutiques, restaurants, bars — and specialty cupcakes.
“It’s a dichotomy,” said Zhao, “between people who work literally just for pennies and, in the same community, culturally interacting with people who can spend, like, 20 dollars for a box of cupcakes,” she said. “We are able to operate because of this dichotomy. Labor is quite cheap. But we couldn’t exist without there being lots of really, really rich people as well.”
And merely middle-class people, too — because as far as luxuries go, a cupcake is rather modest. It “looks expensive but is actually affordable,” Zhao said. “If you can’t afford a cake, maybe a cupcake you can.”
In a way, Sugarpie is where the desires of the working class and of the consumer class collide — because Sugarpie’s staff has consumerist aspirations, too, Zhao said. “People believe they can hustle, and if they work like five jobs maybe they’ll be able to live the way they see other people living. There’s something inspiring about it.”
With demand for her cupcakes rising steadily and a two-person delivery workaround in place, Zhao can turn her attention to the other challenges of a startup particular to a city like Nairobi. Like electricity.
Here’s an example: After I ordered a sampler box of birthday cupcakes for my roommate, which was to include the much-anticipated vanilla chai + chai buttercream, Zhao sent me this email:
Hi Jacob, thanks for your order! So, our over broke down (power surges) and we can’t get it repaired until tomorrow morning. We were able to make some chocolate and red velvet cucakes before it stopped working. Would it be okay if we sent you three of each of those tomorrow morning?
My roommate agreed to the new selection. But within hours the oven was working again, and a creamy variety of cakes — all in good hands — were buzzing my way on a motorcycle.