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 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.
Negative factors that impact the coast or fishermen’s supply could also influence Luke’s ability to attain supply and a good price point for its customers, Tristano adds.
However, possessing complete control over the product means that Luke’s can focus on something vital to the brand: ensuring the sustainability and traceability of its products. “A lot of folks talk about traceability and sustainability and kind of ride that wave because it’s trendy,” Holden says. For Luke’s Lobster, he says, this devotion is entirely authentic.
In addition to sourcing its own proteins, Luke’s extends its sustainability efforts to several other areas of the business. Each shack uses materials sourced from dilapidated barns in Maine, with tabletops constructed out of dredged-up logs and reclaimed products used as décor. When possible, Luke’s also works with eco-friendly architects to help construct energy-efficient stores.
As the brand grows, the opportunity to incorporate and carry out sustainability initiatives will only grow with it, Holden says. For example, Luke’s is now in the process of incorporating greener paper products into its operation, an option Holden says wouldn’t be possible if the brand wasn’t producing the volume of product that it is today.
“Our brand would suffer, but I also believe the quality of our product would suffer if we didn’t focus on sustainability,” Holden says. “And once that happens, we have a business model that doesn’t make nearly as much sense.”
Another aspect contributing to the brand’s widespread success over its first five years is its guest experience, which aims to inject authenticity at every level, from the product and menu to the design of the units and customer service.
“People are excited about Maine,” says brand manager Jessica Lin. “When people come in, they not only talk about the seafood; they also talk about the atmosphere, how it reminds them of a shack and summering in Maine.”
Communicating the product’s freshness, value, and quality to the consumer—as well as the brand’s authenticity and unique culture—is something Holden says is key in convincing consumers to shell out a higher check average than they would at the typical fast casual.
“As a single store, it was enough to talk about how delicious our food was,” Lin adds. “Now the food speaks for itself, but we need to consistently ensure that everything else we do is just as awesome as the lobster we put in the bun so that our brand does justice to our product.”
Moving forward, Holden says, the brand will continue to expand along the I-95 corridor, with hopes of opening units in Boston and additional areas surrounding New York City. However, dreams of the West Coast aren’t too far behind, with Lin noting that the brand has already begun researching California and other West Coast markets for possible 2016 expansion.
“But the thought of going west of Chicago or south of D.C. is going to take quite an effort and a little bit more development on our side to get comfortable in order to execute that at the level we would expect to execute on,” Holden says.
The company plans to grow by three to five units each year over the next two years, for a total of more than 20 shacks by 2016.
“We want to make sure we’re being responsible in how we source and sell this product. As we get better and smarter and have the ability to do more, we will,” Holden says. “But we want to continue to keep the small-community feel we have at each of the restaurants, and we’re going to grow at a rate that’s fun and comfortable and consistent with the level of execution that we have now.”