Image Taken From: http://www.nytimes.com/2016/08/25/business/smallbusiness/lukes-lobster-restaurants-coops-seafood.html?ref=smallbusiness
The simple desire to eat fresh authentic Maine lobster was the driving force that allowed Luke Holden, an investment banker, to open and run his own lobster business, Luke’s Lobster. Luke’s Lobster is now a highly successful and fast growing business. In just about 5 years, Luke now has 19 restaurants, 2 food trucks, and a lobster tail cart in the United States, while in Japan, he has expanded to five lobster shacks. I believe the reason why Luke is so successful is due to his vertical integration implementation strategy, which allows for a sustainable competitive advantage.
As we have read and seen the example of Michael Dell’s skillful implementation of vertical integration, likewise, vertical integration has yet again proven to be a powerful strategy in business. Undergoing this strategy, Luke established his business in such a way that there is virtually no middleman involved throughout the entire chain. This key move allowed Luke to attain sustainable competitive advantage due to differentiating his business from traditional lobster businesses where they typically have a middle man in between key processes such as delivering and logistics. Sustainable competitive advantage, defined in class as, “performing different activities from rivals or performing similar activities in different ways,” is the essential element that allows a business to outperform its competitors. Luke was able to obtain this advantage through his business model, in which he solely tracks where and how his lobsters are caught, controls the quality, freshness, and pricing, alongside packaging and preparing the lobsters into his restaurants.
Vertical integration not only allows for substantial cost advantages for his business, but it also allows Luke to better ensure the quality of his lobsters and lowers risks for such Food-safety concerns like E.Coli. In addition, this strategy allows for sustainability, where he says, “We’re able to trace every pound of seafood we serve back to the harbor where it was sustainably caught and to support fishermen we know and trust.”
Moreover, after coming across Victor Chen’s Blog, I immediately recognized that once again, vertical integration, when applied strategically, leads a business into the direction of success. Like Michael Dell and Luke Holden’s business model and strategy, Jim Koch, the founder of a billion dollar beer company written in Victor Chen’s blog post, was highly successful in employing vertical integration. As Victor explains, much of Koch’s success is due to vertical integration and Victor adds that, “for 32 years, this method allowed Koch to consistently give his consumers what they wanted.” I am not sure about business owners out there, but if I was one, I would definitely join these men in taking the vertically integrated approach to my business.
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References:
1) A Restaurant’s Sales Pitch: Know Your Lobster – http://www.nytimes.com/2016/08/25/business/smallbusiness/lukes-lobster-restaurants-coops-seafood.html?ref=smallbusiness
2) The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell – https://hbr.org/1998/03/the-power-of-virtual-integration-an-interview-with-dell-computers-michael-dell
Blog Posts:
Victor Chen – https://blogs.ubc.ca/victorchen/2016/10/02/key-to-a-successful-business/
Image: Greta Rybus for The New York Times – http://www.nytimes.com/2016/08/25/business/smallbusiness/lukes-lobster-restaurants-coops-seafood.html?ref=smallbusiness