The menu is the soul of a restaurant, an instrumental tool that extends beyond listing dishes and prices; it's a canvas where culinary art meets psychology and business strategy.
A restaurant's menu serves as a crucial sales tool, despite often being glanced at by customers.
The average customer spends less than 2 minutes studying a menu, during which they scan through, read descriptions, and check prices before making a decision. Optimizing this brief window requires a menu to be concise, well-organized, and thoughtfully laid out, with a key emphasis on ensuring the profitability of every featured dish and drink.
In order to achieve this, restaurateurs employ menu engineering—a strategic approach that involves analyzing sales data and food costs to determine optimal menu pricing.
What is Menu Engineering?
Menu engineering uses data analysis and psychological tactics to optimize menu design, pricing, and content. It involves looking at different parts of a menu and understanding performance metrics of each item.
This process involves categorizing menu items based on their popularity (sales volume) and profitability. To effectively engineer a menu, it is essential to have a thorough understanding of each menu item's prices, food costs per serving, and contribution margin. Armed with this data, restaurateurs can categorize menu items, identifying those that contribute significant profits and pinpointing items that may require reevaluation or removal from the menu.
What are the main goals of Menu Engineering?
In essence, menu engineering is a series of strategic exercises ensuring that every dish and drink on a restaurant's menu is both profitable and well received by guests.
The main objective of menu engineering is to enhance a restaurant's profitability through strategic analysis and optimization of the menu. This process includes the identification of high-profit and popular items, fine-tuning pricing, and strategically placing dishes to guide customer choices.
By gaining insights into the cost, revenue of each item, and understanding customer behavior, menu engineering seeks to elevate overall sales and improve the overall dining experience.
Benefits of Menu Engineering
Maximizing Profitability
By focusing on high-margin items that are also popular among customers, menu engineering helps restaurants increase overall profitability. These items contribute significantly to revenue, allowing the establishment to maximize returns on each sale.
Cost Management
Menu engineering involves a thorough analysis of the cost of ingredients for each dish. This enables better cost management by identifying items with high food costs and low-profit margins. Restaurants can adjust pricing, modify recipes, or eliminate less profitable dishes to optimize their overall financial performance.
Enhanced Customer Experience
Well-crafted menu descriptions, a key aspect of menu engineering, contribute to an improved customer experience. Clear and appealing descriptions help customers make informed choices, reducing confusion and enhancing satisfaction. This, in turn, can lead to repeat business and positive word-of-mouth.
Encouraging Innovation
Menu engineering encourages regular analysis of menu performance, allowing restaurants to stay attuned to evolving customer preferences. This proactive approach enables the introduction of innovative and seasonally relevant dishes, keeping the menu fresh and exciting. This adaptability can attract new customers and retain existing ones who seek variety and novelty.
Drawbacks of Menu Engineering
Complexity of implementation
The detailed analysis and categorization involved in menu engineering, while beneficial for profitability, may introduce complexity into the menu creation process. This complexity could stifle creativity and experimentation, making it challenging for chefs and culinary teams to introduce novel and exciting dishes.
Excessive focus on high-margin items
While it's essential to highlight high-margin items, excessive promotion of these dishes can lead to customer dissatisfaction. If the menu lacks variety and becomes overly focused on profit-driven choices, it may result in a monotonous dining experience. Customers may feel disappointed, and over time, eroding trust can affect long-term loyalty.
Frequency of menu edits
Editing the menu too frequently, especially on a weekly basis, can create confusion among customers, potentially driving them away. Striking the right balance in the frequency of menu changes is crucial for success.
Menu Engineering During Inflation
Inflation has become a formidable challenge for restaurant owners and kitchen managers in the last few years, reshaping the landscape of menu pricing and profitability. From November 2022 to October 2023, restaurant prices surged, surpassing the overall inflation rate, while grocery prices remained relatively stable.
According to the Consumer Price Index data disclosed by the Bureau of Labor Statistics, grocery prices experienced a modest increase of 2.1% throughout the year. In contrast, menu prices soared by 5.4%, primarily driven by a significant 6.2% surge in limited-service restaurants, encompassing fast food and fast-casual establishments. Full-service restaurants, known for table service, observed a 4.3% increase in prices during the same period.
However, amidst these economic pressures, innovative strategies rooted in menu engineering can serve as a beacon of resilience and profit optimization.
- Identify high-performing menu items with good profit margins (less than 25% food cost or high dollar profit margin items even if the food cost % is low). You can focus on selling more of these items or even finding opportunities for slight menu price increases, even if you lower the price of another item that is high profit but low sales volume.
- Assess dish portion sizes. Chefs tend to over-portion. This can be by mistake or because you’ve simply specified a higher portion than customers are finishing. To avoid this, ask your dishwashers which plates come back most often with the most food still left on them!
- Calculate your overall menu cost. It’s vital to see how price changes in high-usage items in the kitchen, like butter, flour, and tomatoes. This information impacts a restaurant’s revenue and profits in real time. By knowing this information, chefs and purchasers can make better buying decisions, and even see when it makes sense to buy in large volume to leverage better pricing that will directly result in higher profits.
How to Engineer Your Menu
1. Determine Your Exact Recipe Cost
Calculating the precise portion cost of each recipe on your menu sets the foundation for menu engineering. By dissecting ingredient costs and understanding the true expense of a dish, you can gain insights into individual item profitability.
For example, let’s say you own a Mexican restaurant that serves an Al Pastor taco. Making 36 corn tortillas costs you $16, 5 pounds of onion costs you $6, 5 cups of cilantro costs you $2, and 54 pounds of pork costs you $90.
A taco requires one corn tortilla, 5 ounces of onion, 4 ounces of cilantro, and 6 ounces of pork. So the cost of this dish would be:
- Tortilla: $16 divided by 36 = 0.44 cents for one tortilla.
- Onion: $6 divided by five = $1.20 per pound (16 ounces). $1.20 divided by 16 = 0.08 cents per ounce, times 5 = $0.38 for 5 ounces.
- Cilantro: $2 divided by 5 = $0.40 per cup (8 ounces). $0.40 divided by 8 = 0.05 cents per ounce, times 4 = $0.20 for 5 ounces.
- Pork: $90 divided by 54 = $1.67 per pound (16 ounces). $1.67 divided by 16 = 10 cents per ounce, times 6 = 60 cents for 6 ounces.
Once you combine all these ingredient costs, you will end up with a recipe cost of $1.17 for the Al Pastor taco.
Profit Margin Per Serving and Food Cost Percentage
After you have figured out the cost of ingredients for each dish on your menu, you will then want to determine each item’s contribution margin or individual item profit. To do this, subtract the cost from the selling price for each dish. If the Al Pastor taco on your menu sells for $5, then the profit margin would be $3.83.
You can also calculate your food cost percentage (in this case, $1.17 is 23.4 percent of $5, so the profit margin for the quesadilla is 76.6 percent). Then, list all your menu items in order from highest profit margin to lowest.
2. Find the Balance Between Profit and Popularity
Next, you’ll want to collect sales data to determine each menu item’s popularity with guests. Over some time - ideally, between 2 weeks and a few months - you’ll want to keep a tally of every dish you sell. Then, make a list of all your menu items ordered from high popularity to low popularity.
There are typically four ways to categorize dishes:
- Stars are highly profitable and have a high sales volume. These are likely items that people love. Very small increases in sell price can have a huge impact on increasing your total profit.
- Puzzles are highly profitable but aren’t popular with guests. These dishes are opportunities! Repositioning this item, adjusting prices slightly, or conducting some server training could help improve sales of this item.
- Plowhorses are highly popular but have low profitability. The best course of action is to optimize your recipes with cross-utilization of products. Or by adjusting how much of a high-cost ingredient you use in a recipe.
- Dogs have low profitability and popularity. These dishes might be ready for the chopping block unless they offer cost-saving opportunities.
By analyzing the impact of changes made to your menu based on your actual sales volumes, menu engineering enables chefs and operators to increase profit margins and reduce food costs without changing any part of their day-to-day operation.
3. Consider Menu Psychology
Menu psychology serves as a tool to elevate the overall dining experience and drive profitability. By grasping the psychological drivers behind decision-making—like color schemes, layouts, pricing tactics, and item positioning—restaurants can fine-tune their menus to prompt increased spending, heightened customer satisfaction, and foster repeat business.
Using vivid descriptions and enticing visuals can make dishes more attractive, strategically grouping high-profit items can amplify their appeal, and spotlighting popular or signature dishes can create a sense of social proof, enticing customers to try these menu items.
A few psychological factors to consider when planning a menu include:
- Craft compelling, emotional menu item descriptions to enhance the appeal.
- Include photos in your online menu to boost sales.
- Split your menu into several menus to eliminate FOMO
- Ensure your menu is easy to navigate on smartphones or tablets.
- Draw attention to specific dishes through labeling, icons, graphics, and colors.
4. Track Menu Engineering Effectiveness
After completing your menu redesign and it's been active for about a month, analyze your sales data to gauge the financial impact of the adjustments. Did sales of your highlighted items improve? Have profits increased compared to previous months? Were there reductions in food costs?
Based on your findings, you might opt to further refine existing dishes, experiment with new ones, or reconsider the layout. The intriguing aspect of restaurant menus is their perpetual potential for enhancement.
How to Measure Your Menus Impact on COGS
meez offers a revolutionary digital solution for menu engineering, aimed at helping restaurants understand the true cost and profitability of their menu items. It eliminates the need for cumbersome spreadsheets and provides real-time insights into the financial impact of menu changes. With meez, users can easily analyze food cost percentages, profit margins, and revenue with a single glance, enabling them to make informed decisions.
- Build menus with recipes and ingredients across various menu types, including a la carte, tasting, build-your-own, cocktail, wine, and catering menus.
- Make adjustments to recipes, portion sizes, sell prices, and sales volumes in real-time, and see an immediate impact on food cost percentage, profit margin, and revenue
- Identify menu outliers, discover purchasing opportunities, and determine which menu items drive the most profit and sales volume.
Does Menu Engineering Really Save You Money?
Menu engineering is a dynamic process, requiring continuous analysis, adaptation, and a balance between business insights and customer appeal. By harnessing data, employing strategic pricing, leveraging technology, and understanding psychological nuances, restaurants can boost profitability and thrive in an ever-evolving industry.
Operating a restaurant is undeniably demanding, and here at meez, we're committed to aiding you in boosting your profits by reducing your theoretical food expenses.
If you want a personalized demo of menus, book time with our team HERE.
