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Your Menu Working For You or Against You? By
John Nessel
Restaurant Resource Group
As a restaurant operator you already know
the importance of keeping your food costs in line. Pretty
obvious stuff huh? That’s because combined with your wages and
other payroll expenses, food and beverage costs account for
anywhere from 60-70+ percent of your total revenue. Moreover,
your food and labor are relatively controllable costs compared
to rent, utilities, insurance and most of the remaining expenses
that make up your monthly payables list.
Menu Engineering
We’re going to save the labor conversation
for another day. Today we’ll take a unique look at controlling
your food costs. More specifically I’m going to introduce to you
a powerful tool to help you achieve this. This tool, along with
techniques for utilizing it, has been called menu engineering.
In simpler terms I would describe the process as the methodical
selecting, costing, pricing and evaluating of your menu items.
Menu engineering provides the manager with
information about a menu item’s profitability, as well as
popularity, so that proactive planning, recipe design and
customer pricing decisions can be made. Menu engineering is not
a substitute for proper purchasing, food rotation, standard
recipes or any of the other basic kitchen controls that can
negatively impact your costs. Rather it is a method of
evaluating every item on your menu relative to its present
contribution to bottom line dollars, thereby allowing managers
to recognize the items they want to sell!
Contribution Margins
While the concept of food cost
percentage (an item’s ingredient cost divided by it’s menu
price) is the most commonly used criteria for assessing
effective cost controls, the concept of contribution margin
(an item’s menu price less it’s food cost) is the basis of
menu engineering. A simple question should make the distinction
clear. If you could sell one more item before your restaurant
closed today, would it be a sirloin steak for $20 that costs you
$8 or a plate of pasta primavera for $10 that costs you $2.
While the food cost percentage of the pasta is 20% versus 40%
for the steak, the steak will contribute $12 to gross revenue as
opposed to $8 for the pasta. I’ll take the $12… thank you very
much. Contribution margin then is based on the dollars you take
to the bank.
Accounting for the Popularity of Menu Items
While a menu item's contribution margin
tells us how many dollars each individual sale of the item
contributes to the cash register, you need to know how popular
the item is to determine the total dollars it contributes to the
restaurant’s revenue. A popular item with a high contribution
margin is a “star” while an unpopular item with a low
contribution margin would fairly be called a “dog”. Menu
engineering therefore takes each menu items contribution margin and its popularity into account to determine
into which of four
categories it falls: star, workhorse, challenge or dog.
We’ll get back to these categories shortly.
The Evaluation
I have
included a completed Menu Engineering spreadsheet to
demonstrate how the process is performed based on the required
information listed below (click on the image to enlarge it). This fully automated spreadsheet
is available for sale along with other useful restaurant operations
spreadsheets at
www.rrgconsulting.com/spreadsheets.htm
click on the above
image to enlarge...
The information that you need to
perform a menu engineering exercise is as follows:
- Column
A. A list of your competing menu items (a
separate evaluation should be performed for each menu category
e.g. appetizers, entrees, and desserts)
- Column
B. A periodic (weekly or monthly) total of
the number of each item sold (use your POS report)
- Column
D. The ingredient cost of each menu item
(not just the “center of the plate” cost but the entire cost
of the item)
- Column
E. A list of the menu selling price for
each item being evaluated
You can perform the evaluation yourself by
manually calculating the numbers in the following: Columns C,
F, G, H, L, N, I, J, M, K, O, and Q. (Note that the
spreadsheet above automatically calculates these numbers)
The inputs in
Columns P, R and S are
calculated as follows:
Column P: Profit Category is
LOW if
the menu item profit is less than the menu’s Average item profit
($4.16 in this example). Conversely, enter HIGH in the cell if
the menu items profit is greater than average for the menu.
Column R: Popularity Category is
LOW if the menu item's menu-mix percentage (e.g. the
total number of the item sold divided by the total number of
items) is less than 80% of the average. Conversely this means
that we are considering an item to be popular, and placing the
word HIGH in the column, if it sells at least 80% of an
average item’s popularity. In the example below, the average
menu popularity equals 8.3% (100% divided by 12 items = 8.3%).
Therefore we consider an item popular (HIGH) if it sells
80% of 8.3% or 6.7%.
Column S: The Menu Item Class is
determined by the results of Columns P and R. If an item is both
profitable and popular then it’s a STAR. It it’s
profitable but relatively unpopular then enter the word
CHALLENGE. If the item is relatively unprofitable but
popular then enter the word WORKHORSE. Finally, a DOG
is an unprofitable and unpopular menu item.
How to Take Action Based on the Results
Let’s start with the obvious. Keep the
STARS and dump the DOGS.
Your creativity is now required dealing
effectively with your CHALLENGES and WORKHORSES.
Lets start with the CHALLENGES. These items are profitable but
relatively unpopular. Your “challenge” is to make them more
popular. There are many ways to accomplish this including
changing the preparation (Veal Marsala may be more popular than
Veal Putanesca, but still just as profitable). Re-naming
or re-plating the item to make it sound and/or appear more
appealing is another alternative. Alternatively you might want to create a whole new
menu item using the same “center of the plate” ingredient, but
doing it in a way that will be more appealing to your customers.
As for the WORKHORSES, they are
popular items with less than ideal profit margins. Here is where
your best opportunities lie. Your job is to re-engineer the menu
item to reduce its cost while not sacrificing what makes it
popular. This can involve substituting a single relatively
expensive ingredient for a one that is less costly (e.g Assiago
cheese in a Caesar salad for Reggiano Parmesan). It may
involve substituting one cut of meat for a less expensive one
knowing that the preparation is what makes the item popular. It
might be as simple as using a less expensive garnish. How about
increasing the items selling price? Your chef’s imagination and
talent takes over here. If I knew how to perform this magic I
would be wearing an apron and a tocque instead of sitting in
this chair banging on my keyboard!
Hopefully it is now easy to see how this
information allows you to proactively manage your menu. From
collaborations with your chef to tinkering with your prices you
can use menu engineering to effectively manage a key aspect of
your food costs!
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