Menu engineering is a scientific approach to analysing the performance of each menu item. It helps single or multi-unit restaurant operators understand their cost structure and redesign their menu. It can also maximise profits by promoting your most profitable menu items and encouraging customers to buy them.
Menu engineering has two main elements: demand and the contribution margin of each item to a restaurant's total profit. With the ability to identify and analyse items based on profitability, users can make informed decisions to increase sales and profitability simultaneously.
Sales mix polling combined with recipes, built out with costing, integrates critical data about quantities sold compared to item margin. It helps you determine whether menu items need revision in portioning or if you need substitute ingredients to achieve your price objectives. For example, if you find that a menu mix is not covering operating costs, you can take corrective action by eliminating, redesigning, or discounting specific items with little effort.
This process allows you to easily visualise the popularity and profitability of each menu item based on margin contribution and sales success. It will enable you to understand underperforming menu items to seize opportunities, such as promoting meals that are high in margins but low in sales. You can also track individual server performance, which is invaluable when training servers to suggestively sell highly profitable menu items.
Menu Costing, right down to the last penny
The first step of the menu engineering process is the menu costing. To determine how much it will cost to create each menu item, you must break down every item on your menu and cost each to the penny.
Determine the cost of each menu item by adding all the food costs in that dish together
For example, if one egg costs 30c and there are three eggs in your spinach and mushroom omelette, the egg cost of that dish is 90c. Repeat that step with the mushroom, spinach, other seasonings, cooking oil, and other ingredients to arrive at a total food cost estimate. Add that figure to the cost of purchasing those ingredients (only their food cost percentage related to the food items in the omelette dish) to arrive at your result: the price for that spinach and mushroom omelette. Do not include labour costs in your menu item calculation.
You need to create a system that tracks usage and yield from each food item to get an accurate recipe cost; this recipe cost tracking feature calculates cost-per-portion and allows you to quickly improve your food item usage and reduce waste.
Popularity VS Profitability
Once you've determined the cost and price for a menu item, evaluate how profitable it is. We then calculate the contribution margin by deducting the menu price from the cost of goods sold (i.e., food, beverage, and labour costs). Whereas "dollar sales" represent the total ingredients and preparation cost for a particular dish, doesn't always accurately portray an item's profitability—especially when labour costs have been factored in. In order to make sound business choices about your menu items, base your decision on their contribution margins — not dollar sales.
To single out which items are doing well and which aren't, plot them on a menu engineering matrix. The popularity of each item is plotted on the Y-axis, and its profitability is plotted on the X-axis. You are now equipped with valuable information that can help you make more informed decisions in developing your menu.
You can create the matrix manually, or use a system that can help create the matrix. Haveing the matrix set up will help you as restaurant owners visualise the profitability vs popularity of your menu items by classifying them into these four different categories:
Stars: popular and profitable
Plowhorses: popular but unprofitable
Puzzle: profitable but unpopular
Dog: unpopular and unprofitable
Making better data-driven decisions
You want to highlight items that are popular and profitable on your menu. These products should have the exact specifications listed on the menu and not be altered. If you raise the price, customers may order fewer of them, decreasing their popularity however, you can try increasing the price slightly to see how customers respond and whether they will still purchase the item if their cost increases.
Another strategy is to suggest that your servers strongly sell these popular and profitable items by training them on suggestive selling techniques.
When a menu item is popular but not profitable, you can increase the contribution margin by increasing its price. This requires careful and gradual price increases to avoid alienating customers.
Another option is to decrease the cost of ingredients or decrease the portion size to raise the contribution margin without making customers feel like they're paying extra for the same amount of food.
Menu items that are profitable but not popular with customers are a challenge. You want to serve these items because of the high margin contribution, but your challenge is encouraging customers to order them. You can increase sales of these items by repositioning them on the menu or training servers to sell them suggestively.
You might also consider decreasing the price slightly boosting sales of the item, whilst maintaining profitability.
If any of your menu items aren't popular or profitable anymore, it's time to scrap them. A tough decision for many chefs—it can be an emotional experience to say goodbye to an old friend. We get it!
But if you're looking to maintain a streamlined operation, this is the way to go.
There are some exceptions with this. If you have an inexpensive item to prepare, provides opportunities to use leftovers, and is easy to make, you might want to keep it around. Other than that, do your business a favour and bid farewell to these menu dogs.
Powerful menu engineering tools will help you capture more profit from the same sales dollars.
As a restaurant operator, you are constantly challenged to make calculated decisions about keeping or removing dishes, raising or lowering a menu item's price, changing portion sizes or ingredients, and identifying profitable items to increase sales.
Menu engineering will help you understand the profit contribution for each of your menu items and provide you with an invaluable tool for analysing your restaurant's product mix and how it affects your profitability.
You can immediately identify "dead weight" on your menu and learn how the profit contribution of each menu item affects your bottom line. With menu engineering, you can also eliminate across-the-board price increases while learning how to increase prices with little or no customer resistance strategically.
At DC Strategy we understand that menu engineering can be a tedious and time-consuming process, especially when balancing it with the rest of your workload.
Let our experts assist streamlining the processes by providing you with a Menu Optimisation Program and Execution Strategies for single unit and multi-unit operators. To know more about this program, contact us at www.dcstrategy.com.