(As published in PMQ Magazine April 2008 2nd of 3 Articles) By Joe Ritorto | Menucorp
How do we increase profits (or maintain them) when we’ve shaved all the expenses off that we could find, but still wages go up, food costs go up, and so do rents and other fixed and variable costs. Do we increase the price of dishes on the menu? Will our competition or our customers allow us to so? Menu Engineering may be the only option.
Let’s dispel the myth straight away. To some, this may seem only the responsibility of chefs, for it is they who “balance the menu” with the “right” number or selection of starters, mains, desserts etc. Selecting which of these items to go on the menu is of course crucial, but the way in which we select them is what is important here.
The term Menu Engineering may conjure up different things to different people and may be seen as doing anything to a menu that makes it more profitable. Put simply, it determines what menu items are profitable and which ones are not. With this data you then proceed and make certain decisions regarding what goes on the menu, where it goes, and in the final analysis, how to get your patrons to buy more of the profitable dishes and less of unprofitable ones.
Often we begin the process of working on a new menu and conclude to ourselves that “this dish sells”. If not convinced we begin the task of crystallizing these vague assumptions in factual analysis by asking the floor staff penetrating questions like. “How well do you think does this dish sells?” or “How popular is it?” Not satisfied with one answer we ask that same question to the kitchen staff and get different answer about the exact same dish.
Sometimes we find out that what appeared to e a hot seller, where there is a run on that item one day, may only add up to moderate performer at the end of the week. Or sometimes contrary to popular belief, a slow relatively understated dish performs relatively well week after week. The best and simplest way of collecting data is from PLU systems in registers and POS systems available today. The systems, if programmed and used properly, will provide you with this information effortlessly. At the end of the day we must remember that we are only human and tend to respond to factual factors as well as emotional ones.
One thing I noticed is that it’s just amazing how strong that law of average really is. At the end of the month most items on the menu (assuming nothing on the menu has been changed) will usually constitute the same percentage of sales as the month before, give or take some small variances in sales.
Menu engineering or restaurant menu analysis was originally credited to Michael L Kasanvana PhD and Donald J Smith, in 1982 at Michigan State University’s School of Hospitality business. They looked at the relationship between gross profit margins of each items on the menu and how that contributed to overall sales. For further reading, a book from this work, is titled “Menu Engineering: A Practical Guide to Menu Analysis”.
To begin we must find out which items on the menu are profitable. This is done must accurately by tracking the actual cost of preparation (food costs) for each dish regularly. The best way of doing this is storing standardized recipes on computer and linking those recipes to the actual cost of ingredients at any point in time.
In today’s environment of fluctuating food prices, especially perishables, we ought to consider software that allows us to track these prices based on standardized recipes that have exact quantities and price with exact preparation and cooking procedures.
With good software, a change in the price per kilo or litre of any ingredient will change all the food cost pricing for all the recipes containing that ingredient. The end result is that you will know exactly how much any dish on the menu is costing you at any point in time as well as the exact food cost percentage based on the selling price of that dish.
If more sophisticated software is not possible or available simple spreadsheets will do this by linking cell addresses with simple formulas?
Armed with the actual profit for each dish and the exact quantity of each dish sold, each period, we can continue the exercise of becoming more profitable by classifying dished in the following four categories
1) Stars (Popular and profitable Dishes)
2) Plow Horses (popular but not profitable)
3) Puzzles (not popular but highly profitable)
4) Dogs (neither popular nor profitable)
Armed with this information it easy to see how this can change the way we look at dishes and their place on our menu. Hopefully we can begin to see how we can transform innocent lists of meals into profitable user friendly tools of sales analysis. Flexible menu covers are very important here in facilitating swift menu changes, allowing paper inserts to be changed with relative ease. The next step is to see what amount of money as a dollar value each dish is bringing in.
Example 1: In one period, 100 x 350gm porterhouse steaks garnished with vegetables were sold, with each having a nominal food cost (excluding labour) of $12.05 and the selling price (excluding GST) is 21.50.
Profit of $9.45 or a 56.06% of food cost.
Profit for period is 100 x $945
Example 2: In one period 100 x capricciosa pizzas were sold, with each having a nominal food cost (excluding labor) of $3.75 and the selling price (excluding GST) is 12.75.
Profit of $9.00 or a 29.41% food cost.
Profit of period is 100 x $9.00 is $900
Which dish would be most profitable to you? The item with lower food cost percentage and lower dollar profit or the one with the higher food cost percentage and high dollar profit. (The answer is at the end of the article).
Question: How in the world can I do this sort of analysis in this business? Who’s going to give me the time to do all this?
Answer: Get people involved to record this stuff, even if it is done on paper to begin with. It may seen an unnecessary expense to start, but will prove to be a profitable exercise if executed properly. Work on the business not always in it!
Question: My chef and kitchen staff will not assist with this level recording and scrutiny.
Answer: Sometimes what we think is that case does not always turn out that way. Given an opportunity, most kitchen staff today, after understanding the benefits, should be more than happy to take on new skills and challenges. This after all, should make their job easier, by increasing their knowledge and managerial ability. If they become profitable exponents of this knowledge and possess the ability to streamline the operation of a commercial kitchen with standardized recipes, then their job becomes easier because they can train using recipe cards, know exactly where the money is going and then, in the end, can command more money for themselves in the market place as a result of what they have done with the food cost.
Ideally, our aim is to see as many Stars move as possible and have as few Dogs as possible. The challenge is to introduce the Puzzles into the mix and make the team work. Proper pricing must always be based on the value perception of our customers, not just pre – established formulas only. Remember to give your menu the importance it deserves as it truly is your indispensable sales tool!
The next article on menu engineering is on the placement of items on the menu and analysis on the effect this has on sales. This will teach you how to direct your customers to picking dishes off the menu that you want them to buy, techniques available and how to implement them, the importance of image and how the menu reflects the whole atmosphere of the restaurant. For more information about this article please contact me, Joe Ritorto, at Menucorp, PO Box 495, kew Victoria 3101 or email email@example.com
PMQ’s Magazine Australia Information, as published, in this article, is intended be used as a guide only, and may not be necessary or apply to experienced restaurateurs, and may not suit all restaurants â€“ professional independent advice is advised.