Toy maker Funko wants to make cereal a collector's item for pop culture junkies

  • At a time when cereal sales are on the decline, Funko is offering up a sugary indulgence — and it's selling out fast.
  • Funko's boxes is tapping the same affection a sports fan would have seeing their favorite player or team on a box of Wheaties.
  • While Funko's cereal accounts for a very small part of the company's overall revenue, CEO Brian Mariotti said the new launch fits into Funko's strategy of creating short-term demand for sought-after collectors items.
FunkO's is the multigrain cereal for pop culture enthusiasts.
Funko
FunkO's is the multigrain cereal for pop culture enthusiasts.

If it exists, odds are Funko has turned it to a collectible — or plans to.

The toy company, which went public last November, is known for its stylized figurines of famous pop culture icons from "Game of Thrones" and "Harry Potter" to "Dragon Ball Z" and "Fallout." Now, Funko, which has become a cornerstone in the geek merchandise industry, is bringing those characters to your cereal box.

In July, Funko came out with a line of multigrain cereals called FunkO's. Each box features a unique character from pop culture like Batman, Beetlejuice and Freddy Krueger along with brightly colored cereal and little Funko Pop collectible.

While Funko's cereal accounts for a very small part of the company's overall revenue, CEO and self-proclaimed geek Brian Mariotti said the new launch fits into Funko's strategy of creating short-term demand for sought-after collectors items. For instance, consumers who missed out on scooping up the Beetlejuice cereal won't have a second shot at buying it now that it's out of stock.

"It's limited," Mariotti said of the cereal launches. "The sell-through is very quick and we move on to the next one. That mirrors what we do a as a company. We create a sense of urgency around a product."

Funko's new cereal comes at a time when cereal sales are on the decline, the result of consumers looking for healthier breakfast alternatives. While the company's FunkO's might not turn around that trend anytime soon, its cereal is selling out fast. The main attraction isn't the sugary O's themselves. Instead, it's the art on the box and the miniature figure that comes inside.

The decision to dive into the cereal space was a no-brainer for Mariotti, who grew up watching Saturday morning cartoons and eating heaps of sugary breakfast cereal.

"We are a very nostalgic brand," he said. "It just made sense for us to go into cereal in a much different way."

Funko produced 16,000 boxes of Golden Girls FunkO's to be sold exclusively through Target this month. As of Wednesday, only 6,300 boxes are left on the discount retailer's shelves

Many collectors opt to purchase two boxes of each cereal — one to "rock" and one to "stock," a Funko employee at New York Comic Con told CNBC. The idea being that they can have one box for their collection and one to eat.

Funko's boxes are tapping the same affection that a sports fan would have seeing their favorite player or team on a box of General Mills' Wheaties. Instead of Michael Jordan or Derek Jeter, it's popular characters like Pennywise the clown or The Golden Girls. The novelty, nostalgia and limited availability of these boxes make them ideal pieces for collectors and everyday consumers.

The toy company is working with Organic Milling, a California-based company that has been making cereal since 1960, to create the sugary-sweet O's in its FunkO's.

"At first we thought they were crazy," said Norm Bowers, vice president of sales at Organic Milling. "Then, once we digested it, we were like 'yeah, we could do that.'"

The biggest barrier for Organic Milling was also the most fun, Bowers said.The research and development team had to create each of the vibrant and bold colors of the unique cereals from the dark green for Gollum and light purple for Bat Girl to the deep black of Elvira's cereal and the rich blues and reds for Jason Voorhees and Mega Man.

The colors in the precooked cereal react to temperature when they are baked, so the team had to figure out how to make sure the O's maintained their rich hues.

"The process is more of an art than a science," he said. "We had to blend several different colors together and see how they reacted."

Organic Milling is currently working on creating white and pink colored cereal, although Funko declined to say which characters would be paired with the two colors.

Traditionally, it takes a year to 18 months for a product to go from conception to the shelf at a grocery store. Funko and Organic Milling are completing that process in five to six months, Bowers said.

"They have the wherewithal to move the products to market," he said. "Their marketing arm is just incredible."

While Funko's cereal accounts for a very small part of the company's overall revenue, Mariotti said the initial interest from consumers has been "insatiable."

Partnering with brands like Target, BoxLunch and Hot Topic, Funko is set to release between 75 and 85 different cereals in limited runs of just a few thousand. So far, the company has close to 1 million presold boxes for retailers, Mariotti said.

Funko currently has a market cap of just over $960 million. Since January, shares of the company are up nearly 200 percent, trading at just under $20 per share.

Correction: Funko's market cap as of Wednesday was $960 million. An earlier version of this story misstated the number.