Key Takeaways

  • Lindzi Shanks discovered through customer interviews that XO Marshmallow buyers actively reject protein and fiber additions; they want clean sweetness, not functional supplements disguised as candy.
  • Tara Bosch scaled SmartSweets by identifying the exact sugar threshold that gives shoppers psychological permission to eat candy every single day.
  • Guy Raz suggested reformulating with allulose to capture diabetic and low-inflammation shoppers, but natural retailers like Whole Foods restrict or ban the ingredient.
  • Traditional marshmallows suffer from occasion lock-in around campfires and holiday baking; escaping that trap requires designing bite-sized formats suited for daily snacking.

Customers Want Less Sugar, Not Extra Protein

Packaged food founders often fall victim to functional creep, assuming every indulgence must become a health food to survive.

Shanks ran into this exact tension while plotting retail expansion for XO Marshmallow. When she polled her core audience about adding functional ingredients, the response was immediate pushback. Shanks explains: “We've talked to our customers about this idea of protein-maxing or fiber-maxing the product, cuz I consider myself a very customer-focused CEO, and the feedback we've gotten consistently is we don't want to get our protein or fiber from our marshmallows. So it's finding that balance between better-for-you versus healthy.”

Indulgent treats serve an emotional purpose. When a brand alters the texture and aftertaste to pack in ten grams of protein, it destroys what makes the confection desirable. Consumers looking for an afternoon treat do not want a dietary supplement. They want an honest treat made with cleaner ingredients.

Escaping the Campfire Means Daily Permissibility

A seasonal confection struggles to survive in grocery retail. Traditional marshmallows are trapped in narrow seasonal buckets like summer campfires and winter hot cocoa. If a category stays tied to rare events, retail velocity flatlines.

Bosch faced this dynamic when founding SmartSweets, and she applied the lesson directly to Shanks: “I think one of the key insights with SmartSweets that we identified was creating the permissibility to eating candy every day, in the same way with marshmallows, and thinking of that lens of what is that threshold with sugar that's the tipping point for giving people that permissibility to truly eat marshmallows every single day as a snack?”

Scale in confectionery does not require total sugar elimination. Instead, it requires finding the psychological tipping point where an adult gives themselves permission to snack on a weekday afternoon. If you can lower the sugar content just enough to remove post-snack guilt, you turn an annual campfire treat into a weekly grocery staple.

Whole Foods Might Ban Your New Sweetener

Lowering sugar forces a hard technical choice: which sweetener replaces sucrose?

Raz suggested targeting health-conscious demographics directly: “What if you offered a SKU that was made with allulose, which is a sugar alternative which doesn't spike blood sugar? So there are a lot of people, not only diabetics, but people who are, you know, doing low-inflammation diets that are okay with allulose.”

Allulose tastes like table sugar without the off-notes of stevia. But retail distribution answers to gatekeepers, not just consumer taste tests. Shanks pointed out the regulatory barrier: “I'm a little on the fence about it only because I know some retailers like Whole Foods and others... They've started to ban it, right? So I think there's an opportunity to have a line that is either sugar-free or made with allulose that isn't part of the core group so that we have both options.”

Natural grocery gatekeepers enforce strict ingredient blacklists. If you anchor your entire brand on an alternative sweetener that Whole Foods refuses to carry, you lock your product out of natural distribution channels. The operational move is SKU bifurcation: keep your core product compliant with natural grocery standards, and deploy alternative sweeteners on secondary SKUs for specialty retail or online buyers.

What to Do With This

Audit your formulation against two criteria before ordering production runs. First, survey twenty repeat buyers and ask if they view your product as an everyday snack or a situational indulgence. If it is situational, calculate the sugar reduction needed to earn daily permissibility without compromising texture. Second, check the banned ingredient lists for Whole Foods and Sprouts. If your hero ingredient sits on any retailer blacklist, build a compliant secondary formulation before spending capital on packaging.