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How Pokeworks Is Taking Advantage of the Raw Fish Phenomenon After being in business for only a few years, the company plans on embarking on an expansion program to open another 80 locations.

By Boyd Farrow

This story appears in the January 2018 issue of Entrepreneur. Subscribe »

Courtesy of Pokéworks, Poke Poke, & Aloha Poke Co.

When Pokéworks opened in midtown Manhattan in December 2015, its co-founder Kevin Hsu wondered if he had made a huge mistake. "The first evening, no one stepped foot inside, apart from two drunk college kids asking if we sold shark," remembers the 36-year-old entrepreneur. The answer was no. His fast-casual eatery served the traditional Hawaiian bowl of marinated raw fish. "I thought maybe we were trying to introduce a food that the masses were just not ready for. No one had a clue what poke was or how to say it." ("Poke" rhymes with "OK," for the record.)

But business picked up once nearby office workers learned they could get a large bowl of lavishly seasoned ahi tuna for $13.50 -- less than the price of two sushi rolls in other restaurants nearby. Introducing an Instagram-worthy, seaweed-­wrapped poke burrito also helped. "One freezing day in January, I arrived to see a line outside that stretched past a neighboring Chick-fil-A," recalls Hsu. "I thought, Wow, if this many New Yorkers prefer raw fish in the middle of winter, this could work anywhere."

Related: Why It's a Great Time to Be in the Food Business

A little more than two years in, there are 19 Pokéworks locations in key North American cities such as Seattle, Chicago and Vancouver, five of which are franchises, and the busiest locations average 700 to 800 servings a day. In January, the company is embarking on an expansion program to open another 80 locations, primarily franchised, across the U.S. "This isn't some trendy bicoastal thing," says Hsu. "People everywhere are eager for diverse foods, and they want healthier fast and fast-casual dining."

Pokéworks is far from alone. In the past few years, poke has become ubiquitous in America. In 2016, 585 American-­Hawaiian restaurants dotted the U.S.; 43 of those had "poke" in their name, according to the food industry market research firm Datassential. In 2017 there were 1,093; 422 had "poke" in their name. Mentions of poke on U.S. restaurant menus have increased 102 percent from four years ago. Significantly, more than 35 million Americans have tried the stuff.

If this kind of growth continues, it would seem poke is poised to join cupcakes, frozen yogurt, cold-pressed juice, and customizable salads as seemingly-out-of-nowhere exploding food trends. And of course, theories abound on what makes poke the new hot food. There's Americans' increasing interest in healthier lunch options, of course. There's the narrative that millennials love anything in a bowl. (In 2016, the Wall Street Journal declared that "bowls are the new plates.") There's the priming of Americans' palates: Much of the work of familiarizing diners with raw fish had already been done by the U.S.'s 4,000 or so sushi restaurants. Then there's the simplicity of what's required to prepare the dish; all anyone needs to open a location is a refrigerator, a rice cooker and a bit of elbow room. (Not having to ventilate a commercial space filled with industrial ovens can shave a few hundred thousand dollars off the cost.) "We started in one location and opened almost 20 within our first two years," says Hsu. "That would have been more difficult with any other type of restaurant."

But no matter what the reason for its popularity, poke restaurant owners are about to learn something that many cupcake, fro-yo, juice bar or salad shop entrants learned the hard way: Trying to turn a profit from the latest food trend is not for the faint of heart. And if you're going to jump in, you'd better understand exactly what's in the water.

"When something is hyped in the media, you often see incredibly high growth for a while before attention shifts to the next thing," warns Aaron Allen, a third-generation restaurateur and founder of industry consultancy Aaron Allen & Associates. "How fast something takes off can sometimes indicate how quickly it might fall."

Image Credit: Courtesy of Pokéworks, Poke Poke, & Aloha Poke Co.

In Hawaii, poke is a classic and ubiquitous street food -- tubs of chopped fish, tossed with salt, seaweed and kukui nuts. The dish was popularized more broadly in the early '90s by Hawaiian chef Sam Choy, who literally wrote the book on poke (Poke: Hawaii's Food) and created an annual poke festival and recipe contest. While the basic recipe is simple, poke is almost endlessly versatile: You can customize the fish, the toppings and the base at the bottom of the bowl.

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Before this decade began, if you wanted to buy poke in the U.S., you had to venture to the continental haunts of Hawaiian natives -- places such as Takahashi Market, originally a Japanese general store, in San Mateo, Calif. This changed in 2010, when Texas-born Jason McVearry followed his wife, Trish Fortuna, to Los Angeles after living in Hawaii. They'd only discovered poke six months earlier in Hawaii before they decided to make and sell poke from a walk-up counter in Venice Beach. They named the venture Poke-Poke and, inevitably, made a sign from a surfboard. "We had great fun making big batches of poke, but no one knew what it was at first," says McVearry. "We were having to throw it away at the end of the day."

Nevertheless, through word of mouth -- and just as McVearry anticipated -- poke proved the perfect food for faddish, health-obsessed Southern Californians. Soon, a dozen copycat poke shacks opened around them, and even Poke-Poke's landlord evicted it so he could open his own poke restaurant in early 2017. By that time, the couple had already moved to Austin, Tex., where they'd open two more restaurants. "We've been watching it get crazy in L.A.," Mc­Vearry says. "Many Chinese or Korean places are turning into poke restaurants overnight. Bigger, slicker operators are getting in and planning bigger chains."

Indeed they are. Chicago's 13-outlet chain Aloha Poke Co. -- including outlets in Denver, Minneapolis, and Costa Mesa, Calif. -- is planning to open eight restaurants in Florida, Washington, D.C., and Wisconsin courtesy of a "strong seven-figure investment" by Chicago-based Levy Family Partners. And Sweetfin Poke, a slick chain that has opened eight locations in Southern California since 2015, recently tapped former Shake Shack CEO David Swinghamer as a strategic adviser to turn its concept into a nationwide chain. Additionally, a handful of regional poke restaurants are also embarking on expansion in the next few months, raising the competitive bar.

As with any hot new franchising or food trend, competitors are already staking their territories and touting their differentiators -- even if those differentiators aren't exactly game-changing. For example: Tobi Miller, the co-founder of Beverly Hills-based LemonShark Poké, notes that his company is the "only poke restaurant with cushions on the seats."

Aside from those comfy seats, though, LemonShark represents exactly the kind of entrant that buzzy food concepts attract -- which is to say, well-financed people with their ear to the ground. LemonShark was founded by Miller, a founding member and lead guitarist in the band the Wallflowers and the former pro race-car driver Richard Gottlieb. Both men are now successful real estate developers and have racked up more than 25 strip malls in Southern California between them. Their poke chain has six locations -- five in California and one in Orlando, Fla. -- and 23 more set to open over the next 12 months. The company says it has sold 180 units so far, and it's aiming to have 500 locations in key U.S. cities within the next five years.

They're also thinking about differentiators that go beyond seating. "We're dealing with the problem of the low barrier to entry in this market by sourcing the best food, securing the top locations and developing the most comfortable environments to spend time in," Miller says. "We're not just targeting the lunch takeout crowd; we're after the clientele who want a relaxed, casual evening meal." Almost half of LemonShark's business is done after 5 p.m., and it caters to the evening crowd by offering beer and sake.

Miller is convinced that poke can become an enduring fast-casual staple by appealing to both health-conscious, middle-­aged consumers who see it as bargain sashimi and the younger people who want endless mash-ups.

"The economics of running these restaurants are very good. You only need two or three employees, there's no real cooking required, and the price point -- around $12 a head -- is incredible," he says. "Now it's the Wild West, but within 10 years, just like with most restaurant concepts, there will probably be a couple of regional poke players and two national brands. We will definitely be one of those national brands."

But as the industry moves toward the inevitable shakeout, the issues facing poke restaurants run deeper than mere competition.

Image Credit: Courtesy of Pokéworks, Poke Poke, & Aloha Poke Co.

Kerry Chao opened a restaurant called Poke Papa in Washington, D.C., in April 2017. The place has been popular -- "partly because we were first in," he says -- and now Chao is considering franchising his brand. "I feel like we should be rolling out now to New York and some other cities while they are underserved," he says, "but I'm concerned with maintaining quality control over the fish."

He's right to worry. Stocks of most tuna varieties are declining dramatically worldwide, and prices are going up. Even in Hawaii, ahi is now regularly supplemented with alternative local fishes. Already, some in the industry are calling this "the poke effect." So this is the poke entrepreneur's long-term challenge: What to do about an increasingly limited supply of their core ingredient?

Perhaps unsurprisingly, many owners talk about sustainability, and their menus are manifestos for "marine conservation," seasoned with phrases like "responsibly sourced" and "socially responsible." LemonShark's tuna is line-caught in the Pacific, while its salmon is certified to be traced to boat or farm. Pokéworks' Hsu says sourcing sustainable fish is one of the tenets of the company's business plan. In evaluating vendors, he says, the company looks at everything from aquaculture management to the packaging used for fish feed. But in the long term, poke restaurants will also need to ensure that vendors are behaving responsibly; it is their businesses, after all, that could be jeopardized by overfishing.

Pokéworks is trying to deflect criticism by sourcing wild-caught fish from the East Coast. It has also brought on Hawaiian-born chef Sheldon Simeon to get creative with the menu. Simeon, a Top Chef darling, recently added a white fish, bora -- also known as the less-exotic-sounding mullet -- to Pokéworks' menu. The fish can live in fresh and salt water, and keeps shorelines clean by munching on algae.

"We're definitely trying to use underutilized fish," says Hsu, adding that the company further benefits from this by keeping menus fresh and generating positive PR. (Fast-casual salad restaurant and media favorite Sweetgreen deployed a similar tactic by choosing to feature steelhead, an alternative to salmon.)

And yet, while poke restaurants may fill out their menus with fish such as red snapper, blue marlin and octopus, the tuna bowl is ultimately the star attraction -- and almost always the most expensive item.

"When poke is made properly, it is actually an extremely difficult market to succeed in," says Poke-Poke's McVearry. "You have to have a good relationship with a very good fish supplier. This is a high-cost, delicate product that involves very little waste. Take our bigeye tuna: It's flash-frozen in the hull of the boat and freighted overnight from Hawaii." He says if he had more outlets, he may not be able to ensure the fish is consistently high-quality or be able to offer seasonal specials.

"It will be interesting to see how much people will pay for top-­quality poke," says McVearry. "I know one recently opened business that has quality, amazing fish and it was lambasted in the press for its high prices."

Image Credit: Courtesy of Pokéworks, Poke Poke, & Aloha Poke Co.

If there is any inevitability in trends, it is this: At some point, the market will mature. Although LemonShark's Miller says it another way: "There will be a lot of losers." Miller knows the first ones to go. They'll be early, competitive players that serve "low-quality fish in an uninviting, overlit space" -- much like the many collapsing frozen yogurt shops of the 2000s, hastily launched businesses that couldn't be supported by low-check purchases. And he should know; a decade ago, he was one of those fro-yo franchisees. "I bought a Yogurtland franchise in California -- a total disaster," he says. "It's a modern candy store. The yogurt has a ton of sugar, and people pile a bunch of candy on top. I still can't get out of it."

Those giddy fro-yo days should serve as a warning both for franchisees not to be gullible and for franchisors not to be overzealous. Owning the franchise, nevertheless, taught Miller the beauty of the franchise business -- how a concept can grow exponentially in a very short period of time. And it taught him how to be a better franchisor.

LemonShark, for instance, sells franchise territories with an average of three to five sites, not single locations. The company locked down sites near Chipotle outlets, which have a similar price point, and close to big gyms and malls with high-end grocery stores.

However, LemonShark is taking a break from adding more franchises until it perfects the logistics behind serving its current units. The move is based partly on the past experience of Randy Blue, the company's former VP of franchise development. Blue had previously worked in franchise developement for Quiznos. "The company had a hot concept, but it was impatient," he says. It grew from 100 units to 4,000 in three years. At its peak, it had more than 5,000 locations, but franchisees filed a class-action lawsuit alleging market overcrowding, and the company experienced a well-documented flameout, eventually filing for bankruptcy in 2014. Today it has 2,100 locations.

Related: 5 Affordable Franchises You Can Start for Less Than $10,000

So how well can poke really scale? Howard Penney, a restaurant analyst at Hedgeye Risk Management, is circumspect about it. He thinks there could be five good years ahead for well-run first-to-market restaurants, especially in L.A. and San Francisco, cities that share some lifestyle similarities with Hawaii. But still, he says, restaurateurs should be realistic. "You're not going to have a Starbucks-like trend, because everybody drank coffee before Starbucks came along," says Penney. "Mexican food was reasonably popular before Chipotle made it more mainstream. Poke is completely new for most Americans. In time, it could be viewed as another iteration of sushi."

This doesn't mean that poke restaurants can't make good money; analysts say the good ones can. But even if the number of Hawaiian-­American restaurants grows tenfold, that still makes for only 8,000 locations, compared with the almost 80,000 pizza joints in the U.S. With that in mind, Pokéworks' Kevin Hsu says the company is hedging its growth by balancing more expensive, bigger spaces for fast-casual dining with smaller take-out joints. "We want a mixture of sizes. Poke is now mainstream, and we're competing for the same prime sites as other restaurants. It's a real land grab."

Whether poke ends up taking off in franchises, or as part of a broader menu offering at established seafood or Japanese restaurants, it's too early to say. But no matter what happens, this much is guaranteed: Poke won't have this spotlight forever. "There is $4.6 trillion sitting there in private equity funds, and everyone is looking for the next food fad to invest in," says Allen. "You can find a small market for every kind of food, but they can't all work on the same scale."

Miller, for his part, is sanguine. He points out that not so long ago Americans hadn't heard of sushi, and now there are thousands of sushi restaurants in the U.S. doing $3 billion in revenue. "Is this the cupcake craze?" he says. "No. It's not a novelty. It's a delicious, healthy cuisine that Hawaiians have enjoyed for years."

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