- Better-for-you cereal brand Magic Spoon, which began selling its boxes direct-to-consumer in April, received $5.5 million in a seed funding round led by Lightspeed Venture Partners.
- The funds will be used to expand the business, hire more people, increase marketing and create new flavors, co-founder Gabi Lewis told Food Dive. "We realized we were really onto something, so we wanted to pour gasoline onto the fire," he said.
- While Lewis did not share sales figures with Food Dive, he said the four-packs of cereal boxes, which sell only online for $39.95 plus shipping and handling, have exceeded all projections. At this time, the company does not currently plan to bring its offerings to grocery store shelves, but Lewis said it is something that will happen at some point.
While flagging sales have dogged the cereal industry, this investment shows that the category is far from on its way out — and can benefit from some reinvention.
Lewis and Greg Sewitz founded Magic Spoon after selling their previous venture, cricket protein bar company Exo, to Aspire Food Group early last year. Lewis said he and Sewitz talked about products they loved that were ripe for disruption, and cereal rose to the top. While many Americans used to start their day with a bowl of their favorite cereal, sales of the breakfast staple fell 17% between 2009 and 2016, according to IBISWorld statistics referenced by the Los Angeles Times.
Consumers are concerned with the nutritional content of cereal, which often contains a lot of sugar, and the time and effort it takes to assemble a morning bowl. A recent survey from DSM found a quarter of people spend less than five minutes on breakfast, while half spend less than 15 minutes.
At the same time, many manufacturers are pouring on the sugar, going all in with excessively indulgent varieties. On a trip down the cereal aisle, consumers can purchase breakfasts inspired by cookies, candies and popular desserts. Manufacturers say they are looking to deliver great taste and excitement, and the sugary cereals are targeted at millennials.
But Lewis said Magic Spoon is also targeted at millennials. Its consumer base is people who love cereal but are concerned about their health, and want the kinds of breakfasts they remember as children. The company currently has four varieties of cereal: Cocoa, Fruity, Cinnamon and Frosted. Magic Spoon's cereals are firmly planted in the better-for-you category, with 12 grams of complete protein per bowl, 3 carbohydrates, and little to no sugar.
In its time on the market, Magic Spoon has had its doubters, Lewis said.
"In our early days, ... this was a response we actually heard a lot, which is, 'Why are you making cereal? The category died and people aren't eating cereal any more,'" he said. "But our take on that data was not that the category was dying for any fundamental intrinsic reason. Cereal, rather, is declining because there was no product in that category, until now, that was actually speaking to what consumers want these days."
Lewis said his feelings on the category have proven true and there has been an overwhelming response to Magic Spoon. But is it enough to disrupt the cereal segment? Lewis said he hasn't seen any big changes from Big Cereal to directly compete with Magic Spoon.
Magic Spoon needs to be ordered online and has a price that is roughly twice what consumers pay for more expensive grocery store cereals. Lewis said he does want to make Magic Spoon accessible to all consumers, which would require being sold at brick and mortar stores. But for now, the product works well as direct-to-consumer, especially given the direct feedback and easy ways to trial new varieties.
And even though a box of Magic Spoon is expensive, Lewis said he hasn't heard much pushback on the price. Other cereals that cost less use ingredients that are practically bulk food, he said, while Magic Spoon is essentially high quality protein bar ingredients in cereal form. And, he said, looking at a per-serving cost, Magic Spoon is about $1.36 per bowl.
Investors in this funding round are excited about Magic Spoon's potential. Merci Victoria Grace, a partner at Lightspeed Venture Partners, touted the company's strong points in a press release about the investment.
“Magic Spoon’s healthy ingredients, delicious taste and great design have driven growth and customer loyalty,” she said.