Stories of modern business.

Courier Weekly Friday 28 August 2020

Courier Weekly Friday 28 August 2020

Courier Weekly

Gabi Lewis once ran a company that made protein snacks out of crickets. He’s since swapped insects for protein-packed cereal as co-founder of Magic Spoon — a direct-to-consumer brand tailor-built for the Instagram generation. This week on the show Gabi shares strategic, cost-effective tactics that have worked for him and his team, from podcast advertising to influencer marketing.

DANNY GIACOPELLI: Hey guys, welcome back to the Courier Weekly. I'm Courier's Editorial director, Danny Giacopelli. Today on the show, we're here with Gabi Lewis. Gabi was once the co-founder of a company that made protein bars out of crickets of all things. He since sold that company, but he's still in the protein game, having swapped crickets for cereal. He's co-founder of Magic Spoon, a healthy direct to consumer cereal brand that's grain free, low carb and high in protein. Magic Spoon is basically tailor built for an Instagram generation with crazy pastel colours, fun graphics and marketing. And that's actually what we're going to talk about today on the show: strategic marketing tactics that he and his team have used, that are super cost efficient and effective. I caught up with Gabi just a bit earlier today to find out what's worked for them.

GABI LEWIS: So I spent five years harking crickets. That's a crazy idea today, it was an even crazier idea seven years ago when we started, and the motivation for that was that crickets are incredibly sustainable and nutritious as a protein source. We thought if we could convince people that it was cool or aspirational by partnering with chefs and athletes and celebrities, then we could have a real impact on the food system. 

We had an amazing time running that business for five years. I think we helped shift the conversation around sustainable food. It got to a point where we looked ourselves in the mirror and we had to ask, do we want to be cricket farmers the rest of our lives? The answer was, probably not. That was a business that, while incredibly fun, came with lots of challenges. We were building the supply chain from scratch. I lived in Thailand for a little while setting up a supply chain there, which was lots of fun, but very hard. We were also building demand from scratch as well, because everyone at the time and most people today thought eating crickets was just weird. We found a company that was really interested in it, and so we sold that business about a year and a half ago. 

I wanted to stay in the food industry and also to start something up again, maybe swing the other direction and do something with it mainstream. I was really just looking at what are big, meaty categories in the grocery store that haven't been disrupted. When you're looking at big categories in the grocery store, you basically have soda, milk and cereal as the top three. Obviously soda has kombucha, seltzer, non-alcoholic cocktails. There are endless companies trying to reinvent soda. Likewise for milk, you've got the OATLEY's of the world, you've got cashew, macadamia, nut milks. You've now got some lab grown milk coming out. And then you look at cereal, and you see this enormous category that just hasn't been thought about in forever. Maybe granola was the most recent innovation in cereal, or a big company replacing artificial colours with natural colours, and they call that a win. Really, it's a huge category that just hasn't been upgraded for the modern consumer. We saw that as an opportunity to get to work building a cereal brand for the 21st century called Magic Spoon. 

DANNY: Were most of the cereal brands then either owned by the big guys, and/or the small hippies? You'd have some small hippies running a super, super, super healthy organic cereal brand, and then there's the guys behind Cheerios.

GABI: It's actually even more skewed towards the big companies than most categories. Cereal is very hard to make on a small scale. It's not like protein bars or smoothies, where you have all these small like hippie brands, where someone's making their own at home or they're renting a commercial kitchen by the hour, and it's easy to combine ingredients by hand and sell at the farmers markets or a local natural food store. You can't make cereal in your house, you cannot extrude and puff a grain or a protein into a puffed crisp without having a piece of machinery that costs six or seven figures. So you actually don't have that category of like small niche players. You've got Kellogg's, General Mills and Post.   Between the three of them, they've basically got the whole market. You didn't have any startups doing anything particularly interesting or niche or otherwise.

DANNY: How have you disrupted it? You've changed quite a lot of the ingredients. It's high in protein, you've worked on getting the mix, right so it's healthy. You're also an internet cereal brand. That's weird for most consumers. You go to the grocery store and come home with cereal, you don't subscribe to cereal, like you would subscribe to contact lenses or bottles of wine until you guys said, hey, maybe we should, right? 

GABI: Yeah, until you do. It’s the same way you don't buy glasses online until you do. I don't view our innovation as being DTC. I view our innovation and disruption as product focused. We took cereal and rather than cereal being a box of grains and sugar with 20 grams of carbs and 1 gram of protein, we flipped that on its head and we're 12 grams of protein, 3 grams of net carbs, 0 grams of sugar, and so it's really a product innovation. We happen to be selling on the DTC channel online, that is new for cereal. Most people don't buy cereal online, but people are used to buying everything online. I don't view that as much of a leap. 

DANNY: You can go to waitrose.com and order cereal as part of your order, but going to a single product website and just ordering cereal does take a bit of a leap. You have to be really interested in it, right?

GABI: Yeah, totally. To be honest, if you'd asked me before we launched if we would be 100% DTC a year and a half in, I would have said, no. I wouldn't have thought you could build a single product, cereal company to the point we've built it just on a branded website. I would have thought we'd have to be on Amazon, we'd have to be in stores. Everyone knows there's a ceiling for every business in DTC. If you're a mattress company, maybe the ceilings at £200 million, if you're a eyewear company, maybe it's £400 million, I don't know. I would have guessed the ceiling for a cereal company was pretty low, but it turns out it's much higher than we thought it was, which is awesome for us. It means we can stay focused and DTC for the time being.

DANNY: You said your innovation is about product innovation. So, what you guys are doing is grain free, low carb, high protein cereal. One of the claims to fame is that it's more protein than an egg, right?

GABI: The idea was to tick every nutritional box anybody could want. So we are high protein, gluten free, grain free, we're zero sugar and soy free. We've got a tongue in cheek list on the side of our box of all these ridiculous health claims that we are. The only thing we're not is vegan, but basically everything else you want us to be, we are.

DANNY: Yeah, you have a really funny list: keto friendly, child friendly, there's about thirty things on there. Another innovation that you guys talk about is how quite a lot of other cereal brands use a variety of different sweeteners, but you focus on this one particular type.

GABI: We use allulose as our primary sweetener. It's a relatively new ingredient. It is totally natural. It's actually technically a sugar from a molecular perspective, but it doesn't get processed by your body as a sugar. It doesn't spike your blood sugar, it doesn't affect your insulin levels, basically zero calorie, but because it is a real sugar, it tastes closer to sugar than most of the sweeteners that other brands use. That's how we've been able to get as close as we have to the taste of junk food cereal, without using all those crappy ingredients.

DANNY: Who are you targeting? The thing that struck me when I first saw you guys launch is that it appeals to the stereotypical millennial who loves pastel colours and cool typefaces, but it could just as easily apply to their child as well. It's very bright and it's fun branding. So who are you targeting?  

GABI: Everyone. Part of the idea here was to create a really mainstream and accessible health food brand. Beyond cereal, what we wanted to say to people is that you don't have to choose between fun and healthy. Every other health food brand that I can think of takes itself too seriously. If you look at the cereal aisle, in particular, it's split between these fun, colourful junk food boxes with characters on them that just spark joy, and then on the other hand, you've got these white boxes with a farmer on the back talking about his hay that he harvested. It's very natural and minimalist and pseudo-healthy, and boring. 

With Magic Spoon, we wanted to say: it's good for you, and it's also fun and colourful and tasty. There's no compromise involved. With that being the backbone, it makes sense for a kid that wants to eat junk cereal, and might even think Magic Spoon is junk  even though it's not, but also for an adult that wants to be low carb, high protein, or just eat healthily and is fed up of cooking eggs or buying a $9 green juice that's full of sugar.

DANNY: Which begs the question, if you're for everybody, who are you targeting in your marketing? How do you evolve such a fast growing DTC brand?What are some strategic marketing tactics that you guys use to bring in the money? What's been most effective for you?

GABI: We target everybody, but not all at once. Even though we're speaking to all these different types of consumers, you wouldn't know that because you're only going to get one of our messages. To one person, we're a keto cereal brand, to someone else we're high protein, to someone else we're diabetic friendly. That's the beauty of being DTC. You can tell these different stories to different people, and as long as they're not totally contradictory it all makes sense given the various touch points you have. 

In terms of channels, like most DTC brands, we're pretty reliant on Facebook and Instagram ads. We're trying to be less reliant on that because the algorithm can be fickle, but that is the key to growing a DTC brand quickly. It's an important component there.

It's become cheaper recently, right?

GABI: It’s gone up a little bit in the past couple of weeks because of the election. It's all cycles. Five years ago, you could run some Facebook ads, clicks were cheap, and you could get your first million dollars in sales, whatever it may be. It's much harder now in general. With COVID, it got easier again; now going into Q4 with the election and with Black Friday it's about to get harder. So it's sort of just supply and demand there. Beyond that, we do a lot of influencer marketing, a lot of podcast advertising, actually.

DANNY: Yeah, let's talk about the podcast stuff. How does that work? Do you do proper advertisements? Or is it an organic kind of thing with the host?

GABI: It's all about the host for us. Some podcasts, they only do what's called dynamic insertions, a pre-recorded thing that gets plugged into the podcast. That almost always works worse than just having the host organically endorse your product. Then there's natural integration, where they can weave it into a conversation that's ideal. 

More often than not, though, it's a semi scripted, sixty second read at the beginning or the end of the podcast. We do that on podcasts of all sizes. It's a portfolio strategy where we'll sponsor some really big ones for awareness. That's people like Joe Rogan, Pod Save America, Tim Ferriss. Our focus is still return on ad spend, so it's not a pure brand or awareness play, but the efficiency there is a little worse generally than the smaller ones. Some of the podcasts that we're sponsoring are really, really small. They don't have any other sponsors or just a couple, maybe we're their first sponsor. Those are a lot more efficient in terms of return on ad spend, but you've obviously got to do a lot of them to get the same reach as Joe Rogan, and that takes more time.

DANNY: That must be incredibly expensive, the Joe Rogan one and Pod Save America, you guys have done that too.

GABI: They're not cheap. I wouldn't recommend them as the first podcast anybody sponsors, even though actually for us, Joe Rogan was the first podcast we ever sponsored. We did that because a few friends told me that the return on ad spend was amazing for them,  and so we took the gamble. After we did that, everybody I spoke to was ike, why did you take such a risk?

The beauty of these things, though, is that you can figure out whether they've worked for other brands. There's tools online where you can see what brands have repeatedly purchased their media buys on these podcasts, so you can see on any one of these podcasts, has every brand just  done it once and ever again, in which case, it was probably overpriced and not a good return on adspend.  Are brands doing it once as a test, and then renewing it every month for a year? In that case, it probably worked for them. 

DANNY: That's interesting.I know podcast listenership, I probably shouldn't say this as a podcast host, has gone down during the pandemic, because people aren't commuting in their cars, which is generally when people listen to podcasts.

GABI: The last stats I heard was that, on average it's down 20%. But prices reflect that. It sucks for the podcasts, I guess, because they've got lower listeners, and they have to lower their prices, but most advertisers are paying per download, or per listen and so the pricing remains constant from an advertisers perspective.

DANNY: What about influencer marketing? I know you guys have dabbled in that a bit, sending free product to influencers, not necessarily paying them. 

GABI: We do all of it. We have some sizable influencers, who are investors in our business. They're mostly health and wellness influencers. The first million dollars in financing we raised, half of it was from influencers. We brought onboard various people with 100,000-500,000 followers, who are in the health and wellness world, and they invested various amounts in our business. They're really incentivized to talk about our products. Then we also give them revenue share on what they promote as well. There's this double incentive, where if they post about us and sell $50,000 worth of cereal, they'll get a nice chunk of that, but they also want a piece of the company, which they're going to see again in the future if we sell the business. We did that from the beginning, and we continue to do that. Then we also seed a lot of small influencers. We'll send out product to dozens of influencers every week. We don't ask for anything in return, we sort of expect that there will be a quick Instagram story, that's usually how it happens, and then usually they'll ask us for money to do a second one or to do a feed post. 

DANNY: Like, 'oh, look what just arrived in the mail. I had no idea this was arriving. Let me snap it'. 

GABI: It's funny because some influencers try and make it casual and organic because they perform better that way; they know that if it performs, and then they ask for money, maybe we'll do a paid promotion with them. Others, if they're smaller, sometimes want it to seem like a paid post. There's some instances where we'll actually send someone a free product, and they'll act as if we paid them a lot of money to post because they're trying to build their profile as an influencer. That's always quite funny, because we actually don't want people to think that we're paying influencers with 10,000 followers to post about us a) we're not, b) it seems less organic than it is, as it's not what's happening and c) when that happens, 50 other influencers email us asking why X has been paid and they haven't. That's an interesting phenomenon as well.

DANNY: It's like DM him and find out the real story.

GABI: Yeah.

DANNY: You guys have seen increased sales during lockdown. For a lot of brands who do things that  involve cooking or to do with the interiors of your home, just household things,  sales have gone up. Has that just been an organic thing? Or when you saw lockdown was happening, did you double down on ad spend?

GABI: Somewhere in between. There's been an organic lift in the sense that general purchase intent is higher across the board. We can see that reflected in our conversion rate on our website, where for the X percent of people who came to our site pre-COVID and who would click the buy button, now it's like, X times 1.5. There's a few reasons for that: people are stocking up, there's a whole group of people who are now shopping online, whereas previously people were just coming to the website to learn a bit about Magic Spoon, now they're pulling the trigger. Then there's also the fact that people are at home, which obviously helps. Before, people were grabbing a coffee on the way to work, or maybe their office provided breakfast, but now they're at home with their kids, and so not only is new customer acquisition going up, but our existing customers, their propensity to return is also going up and their consumption is going up. 

So we've definitely seen an increase in demand across the board. It's not lost on us how ridiculously lucky we are. We didn't choose this business expecting anything like that. Most people and most businesses have been completely unlucky through no fault of their own as well. So we're grateful that we're in a good position right now.

DANNY: Yeah, I mean, it's the luck of the draw really. Obviously, you have to be a good and sustainable business to survive it. We had on the Courier Daily podcast months ago, the founder of the puzzle brand, Jiggy, and her sales went through the roof in lockdown. She would have never expected that in a million years, but sometimes these things happen. What about adding new products to the product line? Your brand name is sufficiently vague enough where you could add anything involving a spoon and food. Do you want to stay a single product company for a long time, or would you want to add some new things?

GABI: Single product for a while. The cereal market is enormous. Everybody loves cereal, there's endless flavours of cereal. For us, one could build a billion dollar business never doing anything apart from just cereal. I don't want to distract our team with a bunch of other products, none of which have as large markets as cereal, and none of which are really as fun or exciting like cereal is. It's really as fun of a food product as you can imagine. As much as we fault the big cereal brands for pouring sugar down the throats of children for generations, they're amazing marketers. The packaging is fun, old school cereal ads are so fun, there's so much to play with there. It's a really enjoyable product to focus on.

DANNY: Do you have any toys in the boxes yet? 

GABI: We don't. We've gone back and forth, and we've done a couple of little fun things. Last year, we did a bath bomb that turned your bath milky and made it smell like cereal. It was a little too big to put in the box, we just did it as a one day promotion where we gave it for free when you bought our cereal. We're playing around with various ideas.

DANNY: Where have you guys messed up since you've launched? When has the shit hit the fan, or you realised you'd made a misstep?

GABI: Thankfully, we made most of our mistakes at our last business. This time around there are fewer mistakes, although of course there are still mistakes. Predicting demand is always impossible for any company in any industry. That's been a challenge. We've gone out of stock at various times, never for too long, thankfully, but we're getting better at that so hopefully that won't happen too much more.

DANNY: Supply chain management?

GABI: Yeah, and during COVID it's been really hard. At the warehouse level, workers get sick, or they don't want to come in if they think someone else might be sick. UPS and DHL and USPS, every shipping carrier is having major delays right now. So that's challenging to navigate, but those problems are pale in comparison to what many companies are experiencing. So, again, we’re very grateful.

DANNY: When you guys sold the former company, you were doing a bit of market research to see which sectors you wanted to get into next. Were there any that were on the shortlist that you didn't go to down? Are there any other other opportunities, some other kind of snack bar or candy that could use a good deal of disruption right now? 

GABI: Honestly, there's not a lot. There's not a lot of big categories that don't have people playing in them. When we walked the aisles of the grocery store, looking for what just seemed like it needed to be updated, there was very little. Whether it's ice cream, or milk, or soup, or spices, or really anything, if you go into any store now, there's a handful of small disruptive companies trying to reinvent whatever that product is. Maybe some of those categories and startups are failing, or not doing a good job, and so you can go in and try and do it better. 

To us, cereal really stood out as one big category where there was nobody trying to do it. There's a couple of good reasons for that. You cannot make cereal at a small scale, so that's a big barrier to entry. The big players really control the shelf space which makes it hard to get into retailers. And cereal, by design, is incredibly cheap. It's a box of the two most subsidised and nutritionally empty ingredients that exist. When people hear the idea of cereal, they expect to pay $2 a box. You cannot make something healthy and charge $2 a box, and so that's a constant challenge for us; explaining to people why we don't cost the same as other cereal. The answer is that we're just not cereal. Our product is protein powder and natural flavourings and expensive natural sweeteners that we figured out how to make in the shape of cereal. We’re not selling GMO corn and cane sugar in a box. We're selling ingredients that cost 10 times that price. 

DANNY: And that's it for this week. A bit of a public service announcement that this is the final week to apply to Courier's Fresh Fund grant scheme for black business founders under the age of 25 to start or supercharge a company. So if you meet the criteria, make sure to check out the details and apply at couriermedia.co. I'm Daniel Giacopelli, the Courier Weekly is back again next week. We'll see you then.

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