It’s notoriously difficult to break into New York City’s restaurant scene, but customers have been lining up for lobster rolls ever since Luke Holden and Ben Conniff opened their first Luke’s Lobster joint in 2009.
Luke's first tiny East Village store experienced near-instant success in October 2009, and today, their $8.5 million company has nearly 150 employees and 11 locations in the New York City, Philadelphia, and Washington, D.C., areas.
The restaurant concept is simple and innovative: Keep the stores minimal, like the coastal lobster shacks Holden grew up eating in. Swap table service for counter orders to reduce overhead, focus on small, simple spaces so New York's colossal rent doesn't suck up cash flow, and offer a product that's so fresh it doesn't seem like fast food.
"We need to do a very high volume business to make our restaurants worthwhile, because we have a low price point [relative to] our ingredients," says Conniff, who grew up in New England and spent summers in Maine.
Holden, a former Maine lobster fisherman turned investment banker, and Conniff, a food writer, met via Craigslist after Holden advertised for a business partner. The pair leveraged Holden's father's 40 years of experience as a Maine lobsterman and his deep ties to other lobster fishers and processors in the state.
The market they've chosen is potentially a big one, as Luke's rapid expansion has shown. U.S. consumers ate 866 million seafood sandwiches in 2012, compared to 8.7 billion hamburgers and 5.1 billion servings of pizza. There's plenty of opportunity to grow by grabbing market share from other categories, says Warren Solochek, vice president of client development for market research firm NPD Group, of Port Washington, New York.
"Innovation means doing something different, so if you compare [Luke's] offering to your typical fast food restaurant, he has a very different kind of product," Solochek says. "There are very few that serve lobster rolls."
That doesn't mean Luke's has a waterproof business model. There are competitors, like the Red Hook Lobster Pound, which opened in neighboring Brooklyn, also in 2009. Then there's the cost of Luke's main product--lobster--whose price per pound has been at record lows since Luke's opened its first store. Prices could rise, as they did for beef this past summer following the drought. That could expose Luke's to severe cost pressure and compress margins.
"As a commodity, you can hedge some changes in pricing, but what happens if lobster prices go to historic levels, can [Luke's] pass this on to its customers?" Steve Dietz, a partner at GRP Partners, of Los Angeles, says.
Still, Conniff says they have things sewn shut. They've financed expansion solely from cash flow, and from 10 percent notes issued to close friends and family. Their leg up over competition, Conniff says, is offering a product that's sustainable and sourced from fishers they know, who follow Maine's strict environmental laws. And to cut out middlemen, this year, the co-founders opened their own lobster-processing plant in Maine.
"No one can match our quality or our price point," says Conniff. "But you can’t stagnate and expect to continue to grow, so we need to keep firing on all cylinders."