Special Report | September 2014 | By Mary Avant

The Seafood Startup

In just five years, Luke’s Lobster has carved out an industry niche despite—or perhaps because of—its elevated price point and premium characteristics.
Limited service restaurant chain Luke's Lobster serves premium food at high price point.
Luke's Lobster, whose menu is built around a premium, higher-priced lobster roll, is expanding up and down the I-95 corridor.
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For many brands, the startup years are full of operational struggles, sourcing issues, and slow, if any, growth. But that hasn’t been the case for New York–based Luke’s Lobster, a concept that’s cornered its own niche within the fast-casual industry in five short years.

In the last half decade, Luke’s has paired an entertaining narrative—fresh Maine seafood with roots in a father-son team’s entrenchment in the lobster industry—with a high-quality product in a market where the core menu item, the lobster roll, does not exist in a large-scale fashion.

And the resulting growth has been far from slow.

“The environment at the time was [ripe] for a fast-casual seafood concept,” says Luke Holden, Luke’s Lobster founder and president, referring to the lack of authentic, non-gourmet lobster rolls in New York City back in 2009. “Nobody else was doing it, and we had a great story.”

Despite growing up in a small town on the coast of Maine surrounded by the seafood industry, Holden didn’t immediately feel the need to join the family lobster trade. Instead, after attending Georgetown University, he ventured into investment banking—a move that lost its luster once the Great Recession hit economies across the globe. Noticing the absence in New York City of authentic lobster rolls that were both affordable and high quality, Holden went back to his roots in the summer of 2009. He paired up with his father’s seafood distribution company and Ben Conniff—a restaurant industry writer who, like Holden, had no direct experience opening or operating a restaurant concept—and threw open the doors to the first Luke’s Lobster unit in Manhattan’s East Village on October 1, 2009, selling 500 rolls out of a 235-square-foot space on opening day.

“We are 100 percent in control of the product during the entire process and because of that, we can promise a consistent, high-quality product.”

“We had no clue what we were doing,” Holden says. “We knew we had a really great lobster roll and crab roll and shrimp roll, but the little things about how to make it efficiently or what vessel to serve it in were all details that a lot of us weren’t dwelling on leading up to the start date.”

Fortunately, the pair had a strong—if unseasoned—team on its side, thanks to the financial crisis that allowed Luke’s to recruit a group of talented individuals who may not have otherwise been amenable to working at a fast-casual concept.

“A lot of us didn’t have experience in the food industry,” says Emily Feldman, one of Luke’s opening staff members, who has since grown into the role of New York director of operations. “Everybody branched out and shared what they were interested in. Luke and Ben gave us the opportunity to take the reins and … that’s kind of how we grew within the company.”

This initial roster of employees—many of whom, like Feldman, progressed to executive roles at the company—also helped the concept expand rapidly throughout New York City and its surrounding metros, building a team of what is today nearly 200 employees.

After opening its second unit on the Upper East Side in May 2010 and its third in December 2010 on the Upper West Side, Luke’s quickly developed restaurants in the Financial District, Brooklyn, and The Plaza Hotel in New York; Washington, D.C.; Bethesda, Maryland; and Philadelphia. Its newest unit, the company’s 12th brick-and-mortar shop, opened recently in New York’s Midtown East neighborhood. The brand also owns a food truck that treks around the city to offer hungry New Yorkers and tourists alike the chance to purchase $15 lobster rolls made from fresh-caught Maine lobster.

Luke’s pared-down menu features just three proteins—lobster, shrimp, and crab—a limited number of sides, and a handful of seasonal options, such as the Lobster Grilled Cheese and Shrimp and Corn Chowder.

“When it comes to premium seafood positioning, this is a brand that has taken a great step forward,” says Darren Tristano, executive vice president at Technomic. “It has the opportunity to be a category leader because we just don’t see a lot of this type of concept. It’s hard to say whether it’s not out there because of the demand or just the [lack of] innovation and supply.”

While direct competition from other fast casuals is limited, Holden says, the brand does face the challenge of having a high price point, a number more common for casual-dining restaurants. But he adds that the price is not going to change, as food costs are high to protect the quality of the product.

Many customers recognize that Luke’s $15 lobster rolls and $18 combos ring in at a much lower cost than products of similar quality served in casual and fine-dining establishments, says Dennis Lombardi, executive vice president of foodservice strategies at restaurant consulting firm WD Partners. “While it’s an expensive sandwich, it may not be that expensive relative to other product lines by other restaurants,” he says.

Regardless, Luke’s relatively higher price point means the brand naturally attracts a certain type of demographic. Holden says the brand needs high affluent foot traffic to be successful, which limits its growth trajectory.

That might be one reason why few brands with a business model similar to Luke’s have thrived in the fast-casual industry, Tristano says. “We’re still seeing price points just below $10 as more of a sweet spot for fast casual,” he says. “When you get above $10, you start to get into an area where it’s a little too pricy, and what happens is consumers don’t have the frequency.”

Holden says there are several factors that draw consumers in and contribute to the brand’s pronounced niche in the fast-casual industry. First is the food supply’s vertical integration. Once the brand grew to the size where it could no longer sustainably source product from the seafood distribution company owned by Holden’s father, Jeff Holden, the team at Luke’s decided to create its own seafood company that would catch, process, and distribute the lobster, crab, and shrimp used in each of its rolls.

“We are actually out there interacting with the fishermen every day, buying lobster from them, bringing them into our wholly owned seafood company in Maine, and distributing to restaurants,” Holden says of the sister seafood company, Cape Seafood. “We are literally trap to table. We are 100 percent in control of the product during the entire process and, because of that, we can promise a consistent, high-quality product.”

Though its direct connection to the product’s source spells good news for Luke’s and its customers, Lombardi says, it could put the company at risk moving forward.

“As the brand continues to grow, they will be placing more and more demand on their sources … to continue to have the same quality of product at the same relative price points,” he says.

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