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10/01/19

Past Issues

The business of fitness and wellness.

Snap, Crackle, & Keto

 



For decades, cold cereal was a breakfast favorite among Americans looking for a cheap, convenient, and tasty option. But more recently, sales of sugar-laden cereals have taken a hit. Now, a new generation of breakfast cereals is moving in, hoping to fill your bowl with a healthier alternative. Are high-protein, low carb, and grain-free cereals the new breakfast of champions? Let’s take a look. 

Breakfast cereal is big business, but sales have started to slip: 

  • Nearly 90% of US consumers eat cereal for breakfast at least sometimes. 
  • Yet, sales of the breakfast staple fell 17% between 2009 and 2016.
  • Americans spent $9B on cold cereal in 2018, down from $13.9B in 2000. 

This decline is being driven by a few key factors, including health concerns related to excess sugar, the rise of specialty diets like keto, paleo, and Whole30, and growth in the number of cereal-replacement snacks like nutrition bars. 

Sugar. Bland cereals like Corn Flakes gave way to sugary, and highly marketable, options like Cap’n Crunch. But as sugar emerged as a source of health issues like diabetes, heart disease, and obesity, consumers came to view cereal as lacking nutrition and being too high in calories.  

Wellness. The rise of wellness culture has fueled a $4.2T industry. Whether it's in pursuit of physical performance, productivity, longevity, or vanity, we seek out foods and brands that align with these goals. Now, breakfast cereals must comply with our high-protein, ketogenic, or low-carb lifestyle. 

Convenience. Busy and health-conscious consumers are increasingly seeking out convenient and nutritious foods. As a result, healthier and more portable options like nutrition bars, yogurt, and meal replacement shakes have cut into cereal’s share of the breakfast category. 

But, cereal is making a serious comeback. No, it’s not the highly-processed, overly-sweetened corn puffs of yesteryear. Cereal startups have tapped wellness culture and health trends, introducing keto-friendly, high-protein, grain-free, and low-carb options. Meet the new cast of cereal upstarts reinventing the category. 

  • Magic Spoon recently landed $5.5M in seed funding led by Lightspeed Venture Partners for its low-carb, high-protein “child-like cereal for adults”. Its frosted, cinnamon, fruity, and cocoa varieties are sold direct to consumer in four-box packs for $39.99. 
  • Catalina Crunch is a low-carb, zero-sugar, keto-friendly cereal generating nearly $1M in monthly sales. Aiming to be more portable, the product is sold in a resealable bag, an approach that’s working — just 45% of its customers eat this cereal out of a bowl. 
  • The Cereal School bills itself as “old school cereal made the new way.” Boasting zero sugar, 1g of carbs, and 16 grams of protein, Cereal School comes in a portable, snackable, pre-portioned bag. Each bag is the equivalent to one bowl of cereal. 
  • Three Wishes is the latest newcomer. Gearing up for its launch, Three Wishes is preparing to unveil a low-carb, high-protein competitor made from chickpeas — making it grain-free. 

Zooming out: health-minded consumers are making soggy, sugary cereals are a thing of the past. As a result, acquisitions and innovation in the food space are redefining how we break our fast. 

In October of 2017, The Kellogg Company purchased RXBAR for $600M. During the first 12 months following the acquisition, the clean-label protein bar surpassed $200M in net sales. Now, RXBAR is expanding into hot cereal with single-serve oatmeal cups. Of note, hot cereal is a $1.3B category. 

Meanwhile, upstarts like MUSH and Brave, both makers of overnight oats products, are innovating with health and convenience in mind. Similarly, with $5.5M in fresh funding, oat bar producer Bobo’s is poised to move beyond bars into other breakfast options like granola or oatmeal. 

Bottom line: with billions up for grabs, expect to see even more attention paid to busy, health-conscious eaters searching for a convenient, nutritious option to build their breakfast routine around.

Headlines & Happenings

 

 🚲 Backpedal 

ICYMI: Peloton went public last week. The connected fitness company raised more than $1B in its market debut, but the stock tumbled — dropping 11% on the first day of trading. At the time of publication, the stock was trading at $23.49, well below the $27 opening price. 

This stumble was precipitated by a number of factors: 

  • Public investors are skeptical that at-home fitness, in all its forms, is just a fad. 
  • Peloton has a music problem — a $300M lawsuit and $50M in licensing fees. 
  • Wall Street has soured on cash-burning startups — PTON had $245.7M of net losses in fiscal ’19. 
  • Increasing competition and declining gross margin were also cited as concerns. 

The hottest take of them all. That one goes to NYU professor Scott Galloway, who called Peloton out on their “yogababble”. According to Galloway, yogababble is a company’s attempt to conceal its underlying business model or EBITDA with “charm, vision, bullsh*t, and fraud.” 

In Peloton’s case, the company’s mission statement—“On the most basic level, Peloton sells happiness.”—scored a 9/10 on Galloway’s yogababble index. Galloway’s response: “Nope, similar to Chuck Norris, Christie Brinkley, and Tony Little, you sell exercise equipment.

Zooming out: the storytelling and hype that propels a startup from one funding round to the next doesn’t translate to the public market. For Peloton, it’s an uphill climb from here. But CEO John Foley is up for it. Stay tuned. 
 

🍋 Conversational Commerce

While legacy companies like Pepsi and Coke monopolize sugary soda, Dirty Lemon founder Zak Normandin is building a portfolio of functional beverages atop an SMS purchasing platform.

  • Best-known for its Instagrammable wellness elixirs, Dirty Lemon was early to introduce collagen and charcoal as ingredients. 
  • In Dec. ’18, Coca-Cola led a $15M investment into Iris Nova, Dirty Lemon’s parent company. 
  • Dirty Lemon acquired Poncho, a chatbot for weather updates, to double down on a conversational commerce model. 
  • Now, Normandin will be hand-picking brands to invest in and add to Iris Nova’s direct-to-consumer platform. 


Iris Nova recently announced its first batch of investments: putting up to $250K each into female-forward electrolyte drink HALO Sport, sparkling tea Minna, Asian-inspired sparkling water Sanzo, and sparkling apple cider vinegar drink Vina. These investments align with Normandin’s plan to spend $100M building a portfolio of consumer beverage brands over the next three to five years.

Looking ahead: ultimately, brands have two choices: hand over their ad dollars to social platforms and forfeit control to Amazon, or find more innovative and cost-effective solutions. In this case, Normandin believes his text-to-buy tech has the power to upend customer acquisition and beverage distribution. And, if he’s successful in the beverage space, Normandin plans to expand into other consumer categories. 

👋 Attention Please!

We’ve teamed up with the Fitness & Active Brands Summit to bring you a two-day event devoted to the innovations, investments, and opportunities developing in fitness and wellness.

Taking place in Los Angeles on December 4–5, 2019, the Fitness & Active Brands Summit offers panel discussions, private meetings, and keynote presentations from industry leaders like Barry’s Bootcamp, ClassPass, Xponential Fitness, [solidcore], Gympass, North Castle Partners, L Catterton, and many others. 

Check out the full agenda for more details.
 

📰 News & Notes

  • The founders of Epic Provisions return with another meat-forward startup. 
  • Pitbull- and Tony Robbins-backed GRIT BXNG is big on bitcoin and booze
  • McDonald’s introduced a Beyond Meat burger in Canada. 
  • Vitamin Shoppe unveiled a personalized vitamin and supplement subscription. 
  • On second thought, eating red meat is totally fine

💰 Money Moves

 

Beat81, a German fitness tech startup, raised €6.4M in Series A funding led by EQT Ventures.

Recovery supplement startup Vital Technologies, makers of alcohol-recovery drink CUUR, raised $8M in private investment funding. 

Ever/Body, a cosmetic dermatology startup, raised $17M in Series A funding led by ACME Capital.

Australian yoga and Pilates franchise, CorePlus, raised $20M from Canadian franchiser Arman Elie ahead of a planned North American expansion in 2020.

Fifth Season, a commercial indoor farming startup, broke out of stealth mode with $35M in funding led by Drive Capital.

UK television broadcaster Channel 4 invested an undisclosed “seven-figure sum” in The Meatless Farm Co., a plant-based proteins startup. Per the deal, Channel 4 will receive equity in exchange for advertising.

Bhang, a cannabis-focused umbrella company, acquired beet beverage maker Red Ace Organics for nearly $2M. The company has plans for a CBD-infused beet juice shot.

More from Fitt Insider >> Weed is Wellness

Cooking and baking goods maker, ACH Food, acquired digital-native organic baking brand Anthony’s Goods. Terms of the deal were not disclosed.

Ursa Major, a clean skincare startup, raised $5M in growth financing led by Fenwick Brands.

London-based Grass & Co., a CBD wellness startup, closed a €847K seed round. 

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