The death of cereal has been wildly exaggerated. It’s been reported that sales have plummeted in recent years as millennials opted for seemingly more nutritious or on-the-go snacking alternatives. A 2016 report suggested that pouring and cleaning a bowl constituted “too much work” for today’s youth. Others believe the breakfast staple just wasn’t Instagrammable enough.
Cold cereal sales are indeed down, but it’s certainly not in free fall. Revenue declined by 2.6% in 2018, reports IBISWorld, but still garnered $10.4 billion.
So despite the rumors, millennials didn’t kill cereal. They stabbed it with their low-carb knives. (Then kicked it a few times for good measure.)
Indeed, consumers increasingly reach for Greek yogurt, deluxe cottage cheese, or oatmeal with fresh fruit. The more ambitious craft smoothie cocktails of veggies, berries, and collagen powder. Then there are those who just gulp down a cup of Bulletproof Coffee while waiting for their intermittent fasting “window.”
Cereal, for all its sweet and crunchy glory, some would say, didn’t catch up with the times. Who wants a glob of sugar and carbs anymore?
“The cereal aisle looks exactly the same as it did 15 years ago,” laments food entrepreneur Gabi Lewis. “The entire cereal category is full of stale ideas—there’s nothing interesting happening.”
Until Lewis, along with business partner Greg Sewitz, put their heads together to come up with a way to revive the breakfast staple. The pair previously founded Exo, a snack-food company that specializes in cricket protein. (The Most Innovative Company was ultimately acquired by Aspire Food Group in 2018). For their next act, the duo set their sights on a bigger, more lucrative grocery store category. Of the three biggest sellers—beverages, milk, and cereal—only one seemed really lacking in innovation. (There were and continue to be far too many milk alternatives.)
Everyone loves cereal, says Lewis, noting that Americans (many of them kids) average 100 bowls a year. “We asked ourselves whether it was possible to create a cereal that mimics the taste, texture, and feeling of classic childhood cereal but has upgraded ingredients,” says Lewis.
In April, the team released Magic Spoon, a direct-to-consumer line of four “guilt-free,” Keto-friendly cereals that resemble the taste—and even box design—of Count Chocula and company. It comes in four flavors: cinnamon, cocoa, frosted, and fruity. The gluten-free ingredient list is comparable to a protein bar or shake: composed of a protein blend (milk protein isolate, whey protein isolate), coconut oil, fiber, and the natural sweetener allulose. Each serving counts just 3g of carbs. Consumers can buy a variety pack for $39.
“We re-create the nostalgia, sweetness, and the crunch,” says Lewis, “but upgrade it in a way that appeals to modern consumers’ nutritional preferences.”
Bringing back fun
Granted, there are plenty of healthy cereals on the market. Kashi has long marketed its whole grains and fiber consistency. In recent years, the big brands dominating the industry—Kellogg’s, General Mills, PepsiCo (Quaker Oats) and Post Holdings, which together own 80% of the market—infused their most iconic products with trending nutritious ingredients: Cheerios went wholegrain, Special K released a probiotic edition, and Frosted Flakes now comes with “more fiber.”
(It’s unclear if efforts are working: Kellogg shares fell again last quarter partially due to soft cereal sales, reports Bloomberg.)
Much like in Silicon Valley, the big four also began acquiring smaller brands, reports IBISWorld industry analyst Smith Sanders. In 2016, Kellogg bought clean protein bar company RXBar.
“They see the writing on the wall, and they’re making adjustments to their product product lines accordingly,” says Sanders. “They’re doing this either through investing in research and development of new products, or through the acquisition of smaller players that have successfully tapped into a niche market.”
The Magic Spoon cofounders see a striking dichotomy in how popular cereals are marketed to the public. As Sewitz explains, sugary, splashy, and fun hold one end of the spectrum, while healthy, bland, and dull (usually sporting a farmer on the back of the box) is on the other. But “they both are still very high carb, very high in sugar, and contain a lot of grains and wheat.”
Sewitz describes Magic Spoon as “a modern take on nostalgia.” Each box, bursting with psychedelic bright colors, features a cartoon character and a puzzle on the back. It’s a nod to childhood classics, but with no toys at the bottom. (The latter has been heavily suggested online by fans.)
Magic Spoon opted for a direct-to-consumer model because it offers the startup the ability to churn out multiple products and tweak based on customer feedback. In the coming months, the brand intends to release multiple new flavors, including limited-edition runs based on what fans request.
Apart from (mostly being) nonperishable, cereal is light and easy to ship. And it’s a product that people consume habitually, often sticking to a brand once they find something they like.
That brand loyalty, however, also serves as a challenge for newcomers. Sanders notes that major brands boast a dedicated consumer base “that’s taken decades and countless millions—if not billions—of dollars of marketing spend to cultivate.” They also possess a major distribution platform that puts them in front of shoppers nationwide.
The Magic Spoon cofounders acknowledge the difficulty of competing with consumers’ deep connection to their favorite cereals, especially those they consumed as kids. But Lewis is adamant that the connection and that loyalty has “kind of been broken” in recent years.
“People grew up, but their cereal didn’t grow up with them,” says Lewis.
Another potential challenge is price. At roughly $10 a box, Magic Spoon nearly doubles that of the average cereal. While Sanders certainly sees room for innovation and shifting tastes in the space, he raises doubts as to whether consumers will reconsider what has always been regarded as a low-cost breakfast option.
Cereal entered the American landscape at the bottom of the Great Recession precisely because it was a budget-friendly alternative to fresh food items. A growing number of consumers now veer toward premium breakfast options like meat or fresh fruit, but cereal is still considered the cheaper option.
“Ten dollars is expensive when you compare it to traditional cereal, but that’s because traditional cereal is just corn and sugar and grain,” counters Lewis, “whereas what we’re selling—even though it looks, tastes, and is in the shape of cereal—is high-quality [ingredients] not usually found in cereal.”
Nielsen reports that 30% of millennials are willing to pay a premium for healthier “better-for-you” ingredients. That trend can be found across categories, spanning food to personal care. Brands can charge up to three or four times the price for “premium” organic or natural products.
Magic Spoon positions itself along with premium products including protein bars and powder. In that sense, a Magic Spoon serving ($1.39) would be considered a deal, but that, again, assumes consumers will consider it more than just cereal.
“Even though Magic Spoon is more expensive than most cereals, it’s still pretty reasonable,” says Lewis.
So far, the young startup targets two consumer groups. The first is those that love cereal but stopped eating it due to nutrition concerns (and now consume high-protein foods or trendy alternatives like overnight oats). “All of those other healthy breakfast options are direct competition for us, and that’s what we’re going up against—competing for a place in this person’s breakfast table,” says Lewis. The second group of consumers are dedicated cereal lovers willing to pay a slight premium for a healthier version.
To entice new buyers, Magic Spoon offers a “a happiness guarantee.” If a customer doesn’t love it, then can send it back, full refund, no questions asked.
So far, most customers are millennials. (Granted, that’s also who Magic Spoon’s ads target, so it’s a rather circular consumer base.) Many gave up on cereal long ago, but with the promise of adhering to their diets, they’re reconsidering it.
In fact, Magic Spoon sold out of its inventory within its first weeks. While the company would not release numbers, Lewis says they sold over two months of inventory within the first week alone. A percentage of customers were notified that their shipments would be on a three-week delay (leading to quite a few social media complaints).
“We very quickly scaled up manufacturing,” stresses Lewis. “We are fully back and shipping in real time.”
First-quarter sales proved customers are willing to bite on something new. Moving forward, Magic Spoon remains dedicated to the cereal space, with little interest in expanding product categories. At the same time, only 2% of cereal sales are done online, so the company intends to expand into brick and mortar. The cofounders say they’ve already been approached by numerous nationwide retailers.
“Cereal is so emotional for people—it’s so tied up in their childhood,” says Sewitz. “People feel so much affinity for these different brands in a pretty unique way in the grocery store that re-creating flavors and then giving it to them in a way where it fits into their lifestyle, you see the light bulb go off when people see it for the first time. You see that equally across all the flavors.”