Before the founders of Magic Spoon tackled the cereal aisle, their first startup was a line of protein bars using cricket protein called Exo. While the business was eventually sold, it taught them the importance of product-market fit and the difficulty of building a category from scratch. I sat down with Gabi Lewis, co-founder of Magic Spoon to discuss his journey as a CPG entrepreneur, the lessons he’s learned along the way, and why Magic Spoon had to raise nearly $100 million to bring change to the breakfast cereal aisle.
Dave Knox: Let’s start by discussing what Magic Spoon is for those who may not be familiar with it.
Gabi Lewis: Magic Spoon is a breakfast cereal brand that recreates your favorite childhood cereals with more protein, less sugar, and fewer carbs. We launched the business in 2019, so we’re approaching our fourth anniversary. We initially focused on direct-to-consumer sales, but we have since expanded to omnichannel and sell through major retailers as well.
My co-founder is Greg Sewitz, and we actually met at Brown University. We previously built a sustainable protein business called Exo Protein, which we operated for five years before selling it in 2018. After that, we wanted to stay in the food industry, but we were looking for a category that was large and had limited innovation.
We were walking through a grocery store and realized that the two largest categories, soda and milk, were saturated with innovation, while the cereal category, which is the third largest, had remained largely unchanged for decades. We started asking people why nobody had tried to create a better cereal with higher quality ingredients and better macronutrients, similar to what we had seen in other categories like candy and snack bars.
People told us that cereal was a dying category and large companies wouldn’t allow us to get on the shelves, but those reasons didn’t seem valid to us. We knew that if we built a brand and generated enough hype and momentum, we could get on the shelves and create a better-for-you cereal brand.
We developed the branding to be a nod to classic childhood cereals with a slightly grown-up psychedelic twist. The characters on our boxes look like a grown-up version of classic characters, and the flavors are deeply rooted in nostalgia. Our goal was to make flavors that remind people of the cereal they enjoyed while growing up, but with higher quality ingredients and better macronutrients. The idea is that it tastes like it’s sugary and must be bad for you, but it’s actually very good for you.
Knox: You mentioned that your first business, Exo Protein, had its challenges. What lessons did you take from that experience and apply to launching Magic Spoon?
Lewis: The biggest lesson we learned from Exo was the importance of focusing on product-market fit. With Exo, we launched a line of protein bars using cricket protein, which was difficult from both a supply and demand perspective. We thought it was an interesting idea, but we didn’t fully appreciate how difficult it would be to convince mainstream consumers to try it.
For Magic Spoon, we wanted to focus on a massive existing category and create a better product that could go from zero to a hundred in a few years. We wanted to improve an existing product rather than create a new category from scratch. This approach allowed us to focus more on product-market fit and make sure that there was demand for our product before we launched. We also learned the importance of creating a strong brand and building a community of early adopters through a direct-to-consumer model, which helped us generate hype and momentum before launching in retail stores.
Overall, we learned that it’s important to have a strong product-market fit and focus on creating a product that people actually want and need, rather than just pursuing an interesting idea.
Knox: The way investors think about CPG brands has changed a lot since you launched Exo and even since you started Magic Spoon. What have you learned about how investors think about the category, and what advice would you give to others following a similar path?
Lewis: I think it depends on what you want to accomplish and what kind of investors you’re going after. For us, we knew we were entering an enormous category with three extremely large competitors, all of which we knew would copy us. We believed there was an opportunity for a truly healthier cereal to capture a small but significant portion of the cereal market, but we knew there was only room for one or two brands to do that. So we went all in and raised a significant amount of capital to grow the business quickly.
To do that, we needed investors who were deeper-pocketed than your average angel investor and who understood our vision and the speed at which we were trying to move. We also needed investors we trusted and who trusted us. Our first round of funding was mostly from investors who backed us in our prior business, which gave us a level of trust and credibility that most first-time founders don’t have.
I would advise other founders to find investors who are aligned with the scale and speed at which they want to build their business. It’s also important to think through the right timing for each round of funding and to align everyone’s expectations and valuations around the next stage of growth. It’s easy to fall into the trap of raising too high of a valuation just because you can, but that can make it harder to grow your business. Instead, think about the end point and what rounds of funding are needed to get there, and back into reasonable valuations at each stage so everyone is happy with their performance.
Knox: You started as a D2C business before expanding into retail. How did you have to think about building a brand differently between those two channels?
Lewis: Actually, we didn’t launch with the intention of becoming a D2C brand. We launched as a healthy cereal company and thought we would go into retail within a few months. However, our D2C business grew so quickly that we decided to focus on that exclusively for a few years before considering a retail expansion.
We were fortunate because we had built a strong D2C business, a large social following, and everything that comes with that. When we were ready to expand into retail, we had a pull strategy from the retailers coming to us rather than a push strategy. Every major retailer was in our inbox, which allowed us to create a deep partnership with them. We were able to call up a few of the largest retailers, give them an update on our performance, and create a powerful launch in retail that was a true partnership where both sides contributed to the success.
As a result, we were able to have a really strong launch and shot near the top of most of the rankings in the retailers we’re in. In some cases, we have the single best-selling cereal sku out of hundreds of cereals in a given retailer.
Overall, we didn’t have to think about building our brand differently for retail versus D2C. Instead, we focused on building a strong brand that resonated with our target audience, regardless of the channel. Our success in both channels is a testament to the strength of our brand and our ability to connect with our customers.
Knox: What was your launch strategy when it was time to go to traditional retailers? Did you choose to go broad or pick a single retailer?
Lewis: We launched with Target as our first retail partner, but only for a few months. We chose Target because there was a close brand affinity between our brand and theirs, and we found that there was a large overlap between our D2C customers and Target’s consumer base. Target also has a long history of launching D2C brands into retail, which made them a natural fit for us. We then added Sprouts three months later and launched into Kroger, Albertsons, and Walmart in January of this year. Our goal has always been to be a cereal that’s available anywhere that cereal is bought and sold, so we wanted to go to mass retail pretty quickly rather than starting with more exclusive smaller retailers.
Our launch strategy focused on building deep partnerships with each retailer and creating customized marketing and promotions that resonated with their specific customer base. We also provided them with data and insights on our performance and customer behavior to help them make informed decisions about our product. Overall, we have five main retail partners, and we have really good, deep partnerships with each of them. This approach has helped us towards our goal of being the go-to healthy cereal brand for all types of consumers everywhere.
Knox: With your expansion to some of the biggest retailers out there, has the business had to change or evolve in any way to balance driving D2C versus driving retail, or in any other aspects of the business overall?
Lewis: The biggest change has been from a team perspective. We originally built our team to be a best-in-class D2C team, with logistics people who were amazing at optimizing small parcel delivery to an individual’s home and a marketing team primarily focused on direct response growth marketing. We’ve had to work with everyone to evolve their skills to the new reality of being an omnichannel business.
In most cases, this evolution has worked out really nicely. We’re able to bring to the retailer a set of capabilities that most brands don’t have, such as the ability to work with the many hundreds of influencers we’ve worked with over the years for D2C to drive traffic into stores and ensure that it’s incremental aisle traffic for the retailer. We’re also getting very good at using D2C growth marketing levers to drive in-store trial and purchases, which is a win-win for everyone.
Of course, we need to balance this with the overall business and make sure there’s not too much cannibalization, but so far, it seems to be a rising tide that lifts all boats. Overall, we’re excited to be an omnichannel business and to have the opportunity to bring our product to even more consumers through traditional retail channels.
Knox: You’ve mentioned the importance of nostalgia, the breakfast day part, and healthfulness for your brand. What are the intangibles that you make sure your marketing and product teams never stray beyond?
Lewis: It’s a good question, and we debate this internally a lot. We try not to be too dogmatic about it. We discuss the concept of nostalgia and the product guardrails, such as having zero grams of sugar in all our products. We debate internally what it would mean if we were to add two grams of sugar to something. Is zero sugar really key to Magic Spoon, or is it just being meaningfully lower in sugar than traditional cereal or other products in the category we’re in?
We’re still working through exactly where those product guardrails lie and talking to our customers about it as well. As our customer base evolves, we need to make sure we’re evolving with them while still staying true to our brand values. For example, whereas a couple of years ago, it was really important for our customers to have over 12-13 grams of protein on average, now some people are saying that 10-11 grams is okay. As nutrition trends evolve, we’re making sure that we adapt while not alienating our earlier customer base.
Overall, the key intangibles for our brand are evoking joy and nostalgia, being fun and colorful, and being the antithesis of health food that takes itself too seriously. We believe that staying true to these values will help us continue to grow and succeed.
Knox: We’ve just come out of one of the greatest decades ever for brand building and new brands being launched in CPG, with new categories emerging. What do you think we’re going to see over the next 10 years as you continue to grow Magic Spoon and watch the grocery aisles continue to grow and change and evolve?
Lewis: I think we’re going to see almost every category being disrupted by someone coming along and creating a healthier, better-branded version of it. We’re already seeing this happen in every single category, with some probably being too niche. There’s a lot of funding going towards these disruptors, and in some cases, it may be happening in categories where it’s not really necessary. There are probably some categories that are just fine as they are and don’t need millennial fancy branding. In some cases, the improved branding experience is overtaking an actual improved product experience. So I think there’s going to be a correction there, where brands or new brands focus too much on the feeling in branding and less on actually improving the product itself.
At Magic Spoon, we’ve always been very careful to make sure that we’re not just making a cool cereal, but also a better cereal. For us, branding, design, and characters are all important in conveying the feeling we want our brand to have, but they’re not the core of our innovation. Our innovation is creating a cereal that’s 15 times higher in protein and 20 times lower in sugar than traditional cereal. Hopefully, we’ll continue to see more of this kind of true product innovation in lots of categories.
Overall, I think we’re going to continue to see disruption and innovation in the CPG space over the next 10 years, with a focus on healthier, better-branded versions of existing products. And I think there will be more focus on brands improving the product itself in addition to the branding and design.