What is Restaurant Menu Engineering and Why it Works
Simply put, menu engineering is the art of determining how profitable and popular menu items are at your restaurant. Originally developed by Boston Consulting Group in 1970, the idea of menu engineering is simple; use food costing data and item popularity to segment menu items into one of four quadrants. Then, using those quadrants, determine what gets to stay or be removed from the menu.
When done correctly, restaurant menu engineering can pay dividends by boosting profits by more than 10%. However, in that sentence also lies the rub of all this. When done correctly, restaurants can see the benefits.
For many restaurant operators, that means figuring out the average cost per ingredient used in every recipe to determine the total cost of creating each dish. Manually attempting to determine the individual costs of every chicken breast, tomato slice, and bay leaf is a harrowing journey that can leave your head spinning.
Thankfully, what used to be a painstaking manual process owned by one person (because different people value different ingredients differently) can now be handled by your back-office data system.
By combining the data your point of sale system collects every day with inventory tracking data, you can understand what items on your menu are your top performers and what menu items should be reconsidered.
It’s important to know what information you or your back-office system will need to run the equations. In this case, you’re going to need a few helpful pieces of data.
- Ingredient Costs/Menu-Costing (this total will account for associated delivery fees and other expenses but excludes labor costs)
- Menu Item Sales Prices
- The Number of Menu Items Sold
Ingredient costs include everything that goes into making each dish, right down to the seasonings. Depending on how many dishes contain the ingredient, you’ll likely have to break this down into specific yields. For example – if a cheeseburger features two slices of tomato and you know one tomato costs $1 and yields eight slices, its ingredient cost would be 25 cents.
Your menu item sales price is how much you sell that item to your guests. When you divide the menu price by the total cost to make the dish, you can figure out the mark-up for every item (or food cost percentages if you switch the numbers around).
Finally, you can use the number of menu items sold to determine what products are selling well, what aren’t, and where hidden areas of opportunity are. This data can help influence your overall restaurant menu design, allowing you to get the right items in front of your guests at the right time.
Keep in mind that while it’s possible to perform a manual inventory on a regular basis, it’s time-consuming and difficult to keep up with. Inventory and ingredient costs are constantly changing depending on seasonality and availability, and can quickly change the margins you receive for a particular dish.
One of the major benefits a back-office system provides is constantly updated ingredient costs. With that information, operators can keep an eye on prices and adjust them accordingly. Without accurate costing information, operators may not see their best-selling items generating smaller margins. Unfortunately, relying on financial statements doesn’t help. Sometimes those statements can be a month out and by then the damage has already been done.
Stars, Work Horses, Puzzles, and Dogs: Understanding The Menu Engineering Quadrants
Once you understand how much profit you’re making off each dish and which menu items sell well, you can start creating quadrants focused on popularity and profitability. If you’ve never seen a menu engineering chart, the concept is simple.
On one axis, you have profitability. On the other, you have popularity. The way these charts are set up is menu items with low margins that don’t sell well are in the bottom left corner, while popular items with high margins are in the upper right corner.
When you look at the chart, it’ll look something like the one seen here:
Stars – These are the items on your menu that always do well. They have great profit margins and you sell a ton of them. This quadrant makes you the most money, and every item you offer should strive to be a star. On your digital and paper restaurant menus, these are the items that you want to draw attention to if you want to increase sales.
Work Horses – These items usually don’t carry a high-profit margin, but they make up for that with sheer volume. If you can find a way to lower the cost to make it or raise the price a little bit, you can turn these trusty troopers into certified stars and increase profit.
Puzzles – What do you call a mystery wrapped in an enigma? These items tend to have great profit margins, but don’t sell that well. You could be sitting on a goldmine if you figure out a way to promote them. These are items that should be featured prominently alongside your stars on the menu and pushed by your staff as special.
Dogs – Low-profit margins, low sales. These items contribute very little to your overall sales, take up space on your menu, and siphon ingredients from more popular dishes. If you need to streamline your menu, this is the first place to start cutting from.
Menu Engineering as an Enhancement
Understanding how the quadrants work and where your menu items fit into the system can help you save money and see a better return on investment for your operation.
While it’s possible to collect and synthesize your menu data manually, having a back-office data platform is much faster. Using the right inventory software can help you view on-hand products, find variances, determine prices, and see patterns in your food costs.
Additionally, back-office software can make sense of all your recipes, letting you see what is going on with each dish and track the cost of each item.
Having a comprehensive and accurate menu engineering program will help you trim down a lengthy menu, design better paper, and online menus, and offer a better understanding of how ingredients are used in your restaurant. With a few quick calculations and a little inventory magic, you can save money, save time, and positively impact the bottom line.