Is The Keto Cereal Craze Over?

I have a soft spot for sugar cereals.

Having grown up in the 80s eating big boxes of Captain Crunch, Lucky Charms, and Life (my friends called me Mikey!), I still salivate when I see big, colorful boxes with leprechauns and monsters in the grocery store cereal aisle.

So when keto-friendly, processed sugar-free sugar cereal substitutes started appearing in 2018 and 2019, I was excited. Like any self-respecting adult, I’d moved on to more responsible breakfast offerings, but saw these new keto-free cereals as a guilt-free time travel machine back to the land of the magically delicious.

I wasn’t the only one. The product’s early success accelerated during the pandemic, a time when people were bored at home and ordering lots of food via delivery. This led to an impressive series B in 2022, where the company scooped up $85 million. That funding fueled the company’s expansion into retail, and now you can find Magic Spoon in places like Costco, Target, and Walmart.

With widespread availability, the company should now be beating the old-school, better-for-you cereals like Grape Nuts and granola, right?

Maybe not. According to a tweet by Andrea Hernández of Snaxshot, Magic Spoon cereal has hit the clearance bin at Sprouts, a chain specializing in premium brands. The pic, which Andrea also posted on Linkedin, led to much discussion about whether the better-for-you keto cereal trend is over.

While it may not be over, you have to wonder about the long-term prospects of Magic Spoon and competitors like Schoolyard Snacks (formerly Cereal School). The first problem is they are just very expensive. Unfortunately for these brands, breakfast cereal is a commodified item, something most normal adults aren’t willing to pay a 3x premium for.

The other problem is addressable market size. I like Magic Spoon (or actual sugar cereal) as a once-in-a-while nostalgic escape, but realistically, I’m not going to make it a part of my everyday routine (and, as I said, I really like sugar cereal). I imagine this is pretty typical of their addressable target market.

Finally, there’s the question of taste. I’m fine with it, as are many others, but some think the sugar-free taste is a poor synthetic representation of the real thing. In a way, this criticism echoes some of those who have heard about Impossible and other plant-based meats (though I would argue both the purchase motivation and rationale for plant-based meat are much stronger, and the addressable market much bigger).

So is the keto, better-for-you sugar cereal trend over? Probably not yet, but I have to wonder if the VCs who wrote large checks for fund companies making tiny boxes of cereal for adults had rigorously worked through all their assumptions about how big these markets would be.

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