Step into one of the 39 Luke's Lobster locations from New York City to Taiwan and it's easy to pretend you're visiting a classic New England seafood shack: Diners order at simple wooden counters, sit at rough-hewn tables, and munch on a limited (and exceedingly tasty) menu of lobster, crab, and shrimp rolls and chowders, accompanied by simple bags of potato chips. But the Saco, Maine- and Brooklyn-based company's restaurants are actually the last step in an extensive, tightly integrated seabed-to-table operation--one that nearly broke the founders, Luke Holden and Ben Conniff, when they first attempted to set it up.
--As told to Burt Helm

Luke: When I was growing up, my father owned and ran one of the largest lobster processors in North America. It was an intense, high-risk business with very low margins. He was doing $20 million in sales, and taking home maybe $50,000 or $100,000 in income.

Ben: A lobster-processing plant is basically an input-output machine. Your input is live lobsters, your output is lobster meat: frozen raw tails, cooked and pulverized bodies for bisques, and knuckle and claw meat that is cooked, picked, and packed and used for rolls and chowders. And the shells get crushed up and sold as fertilizer. You try to use everything, antennae to tail. 

Luke: In 2009, we opened the first Luke's Lobster shack in New York City for $35,000. I felt I'd pulled a rabbit out of a hat. It was popular right away--and it was much easier than processing. My family decided to sell that business, and then helped me focus on new Luke's locations. 

Ben: By 2012, we had six shacks open, and had saved some of our earnings. We would have liked to put that money toward opening new locations. But we realized that once you get to a certain size, where you get your seafood really matters. We had to decide: Were we going to keep opening new shacks and buy lobster from the open market? Or were we going to put all of the cash that we had--and more--into opening our own seafood company?

Luke: We found a broker, and started looking at properties in Maine. Quite quickly, we found a facility. We opened up with this kind of can-do attitude. Like, "We'll figure out how to manage the finances after signing the lease."

Lobster,
by the Numbers
4,373,932
Pounds of live lobster, crab, and shrimp purchased by Luke's Lobster last year.
150
Number of independent operators' fishing boats used to catch all that shellfish.
$60 million
Luke's Lobster 
revenue in 2018.

Ben: The problem is, it's an extremely difficult, cash-intensive business.

Luke: On any given day, we might process as much as 30,000 pounds. That's $150,000 of live lobster, every day. Fishermen expect to be paid within seven days. The knuckle and claw meat goes into the rolls in our shacks. We're able to get cash from our shacks every week, or every day, or even prepaid, if we need it. But that covers only half your revenue--the tails sell to distributors, who pay on 30-day terms. In the beginning, we had nowhere near the necessary working capital. To solve that, we found a large distributor that paid us to cook and prepare their lobster as a contract pro­ces­sor, with the agreement that we could buy some of the meat for ourselves. That took the burden off us. 

Ben: But that brought other burdens. You have no control over how much lobster is going to show up at your door on a given day. 

Luke: It was an absolute nightmare. You're staffed for 10,000 pounds of lobster, but 25,000 pounds shows up. And lobsters are not going to stay fresh overnight if you don't get them frozen or cooked. So Ben and I, and whoever else was in the building, were there with our sleeves rolled up producing lobster meat until midnight. 

Ben: Back then, there was a lot of "If we get in the car at 2:30 a.m., we'll get to New York in time to start the workday, and we'll miss traffic--as long as there's no overnight construction on the roads. Then, the next night, we'll go back to Maine."

Luke: Then you arrive at 5 a.m. the next day, but the truck is late and doesn't arrive until noon. So the boiler has already been going for eight hours, some workers have to pick up their kids at daycare at 3, for others you pay the overtime--and there goes your margin. Cash was so tight. Every Friday, I'd call the partner we were processing for and say, "Hey, can I run down to Kittery"--which is 40 miles away from our headquarters in Saco--"to pick up that check? Don't put it in the mail. I'll come myself. Now." 

Ben: But, incrementally, you invest. In 2014, we started buying a little lobster from the fishermen--all handshake deals. Then it was, "Can we find the money to hire a salesperson? And can that salesperson find a couple of accounts to move the tails?" And once we have those, we buy more lobster. 

Luke: We sold to brokers; we didn't have any visibility into where our product was going. You hear anything from cruise ships to casinos. You're exhausted by the time you get around to selling. Like, "Please! Somebody! Take these lobster tails!"

Ben: Meanwhile, you're upgrading. There are certifications you need to sell to places that pay for quality, like Whole Foods. It wasn't just our operation--we had to get the lobster boats audited. We started by persuading one lobsterman to do the Whole Foods audit, to get them some product and see how much better ours is than other options. Then it was, can we get a couple more boats audited, and a couple more? 

Luke: You can't just dictate to the fishermen what they should do. You work, developing a standard. And you help train them--making sure they handle lobsters like eggs, not footballs. Like, "Guys, let's design a program that makes lobsters go from your traps through our plant faster in a more careful way." It makes the product more valuable. It attracts marquee customers, who will pay more. 

Ben: Year by year, we shifted the mix from contract processing to our own lobster--75 percent versus 25 percent, then 50-50. By 2017, we were buying all our lobster directly, and doing no contract work. Now we're working directly with fishing co-ops, which sell bigger volumes but with shorter payment windows than even the broker-dealers. Product that we're not using for Luke's, we're sending to Whole Foods' seafood counters. And in November, we started selling branded eight-ounce packs in the Whole Foods freezer aisle, too. 

Luke: The facility isn't a headache now. But we haven't changed. We're still stretching every dollar, and pushing the envelope as hard as we can. Or as hard as we can without having to rush down to Kittery on Fridays. 

From Downeast to the Far East

When Luke's Lobster decided to expand beyond its U.S. locations, the two founders headed to Tokyo. They were intrigued by Japan's seafood-obsessed population, who are happy to pay top dollar for high-end shellfish, and by its many well-established restaurant-operating com­panies skilled at bringing U.S. brands east. In 2015, after two years of research, the Mainers opened a Luke's Lobster location in the well-trafficked Harajuku neighborhood, with local licensing partner Baycrews. Since then, the partnership has opened nine more locations in Japan and two in Taiwan (including the one shown above, which opened on January 10). The founders plan to use this model to expand into new markets in Asia and Europe--and expect to have at least seven more outlets abroad by the end of 2020.

From the March/April 2019 issue of Inc. magazine