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 [Link]/[Link]
click on the above image to enlarge...

The information that you need to perform a menu engineering exercise is as

follows:

1. 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)
2. Column B. A periodic (weekly or monthly) total of the number of each item sold
(use your POS report)
3. Column D. The ingredient cost of each menu item (not just the “center of the plate”
cost but the entire cost of the item)
4. 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!