Menu engineering is a strategic approach used by restaurants and food service businesses to optimize their menus for profitability and customer satisfaction. It involves analyzing and understanding the relationship between the popularity and profitability of individual menu items, allowing operators to make informed decisions on pricing, menu design, and the promotion of specific dishes.
The concept was first introduced by Michael Kasavana and Donald Smith in the 1980s as a framework to assess how menu items contribute to the overall success of a restaurant. Today, menu engineering has evolved into a critical tool used by restaurant owners, chefs, and managers to increase revenues and streamline their offerings.
Key Elements of Menu Engineering
Menu engineering relies on a systematic analysis of sales data and cost structures. Here are the key elements that make up the process:
- Food Cost Analysis
- One of the foundational elements in menu engineering is understanding the cost of each menu item. Food cost refers to the price incurred in producing a dish, including ingredients, preparation, and cooking time.
- Knowing the food cost allows you to determine the profitability of each dish by comparing its cost to the selling price.
- Contribution Margin
- Contribution margin is the difference between the selling price of a menu item and its food cost. It represents the profit generated by that item.
- Higher contribution margins are indicative of more profitable items, but popularity also plays a role in determining whether the item should remain on the menu.
- Sales Volume and Popularity
- Menu engineering doesn’t solely focus on profitability but also considers the popularity of each item. Items that are ordered frequently by customers are considered high in demand.
- Popularity data is typically derived from sales reports that track how many times each dish is sold over a certain period.
- Classification of Menu Items
- Once both profitability and popularity are analyzed, menu items can be classified into four categories. This classification helps identify which dishes should be promoted, maintained, or removed:
- Stars: High profitability and high popularity. These are the best-performing dishes on your menu, and they should be prominently featured and promoted.
- Plowhorses: Low profitability but high popularity. These items are ordered frequently but may not bring in much profit. Strategies for plowhorses include reducing portion sizes, adjusting the recipe, or increasing the price.
- Puzzles: High profitability but low popularity. These items are underperforming in terms of sales despite their profitability. Solutions include highlighting them on the menu or offering them as specials to attract attention.
- Dogs: Low profitability and low popularity. These items are underperforming in both aspects and might be candidates for removal unless they serve a strategic purpose (e.g., catering to a niche customer group).
- Once both profitability and popularity are analyzed, menu items can be classified into four categories. This classification helps identify which dishes should be promoted, maintained, or removed:
Steps in Menu Engineering
The process of menu engineering is methodical and data-driven. Here are the essential steps involved:
1. Collect Data
- Start by gathering data on sales volume, food cost, and contribution margins for each item. This can be done using a restaurant POS (Point of Sale) system that tracks sales performance and financial metrics.
2. Calculate Food Costs and Contribution Margins
- Calculate the food cost percentage for each item. This is done by dividing the food cost by the selling price and multiplying by 100. For example, if a dish costs $5 to produce and sells for $15, the food cost percentage is 33% (5/15 × 100).
- Next, calculate the contribution margin by subtracting the food cost from the selling price. In this case, the contribution margin would be $10.
3. Determine Sales Volume and Popularity
- Analyze the sales data to determine how many times each item has been ordered over a specific period (e.g., weekly or monthly).
- Rank the items based on their sales volume to determine which are the most and least popular.
4. Classify Menu Items
- Use the profitability and popularity data to classify the menu items into the four categories (Stars, Plowhorses, Puzzles, and Dogs).
5. Implement Changes
- Based on the classification, implement changes to your menu:
- Promote Stars through prominent placement on the menu or via special offers.
- Adjust Plowhorses by increasing prices, reducing portion sizes, or using less expensive ingredients.
- Market Puzzles more aggressively to boost sales.
- Consider removing or reworking Dogs, especially if they don’t serve a specific strategic purpose.
6. Monitor and Adjust
- Menu engineering is an ongoing process. Regularly monitor sales and profitability data to ensure that changes are having the desired effect. As customer preferences shift, periodic adjustments to the menu will be necessary.
Menu Design and Psychology
Another critical aspect of menu engineering is the design and layout of the menu itself. The goal is to influence customer behavior and drive them toward ordering high-margin items. Key principles of menu psychology include:
- Eye Scanning Patterns: Research shows that customers tend to scan menus in certain patterns, often starting in the upper-right corner. Placing high-margin items in these “sweet spots” can encourage more sales of those items.
- Highlighting and Visual Cues: Boxes, bold text, or different font colors can draw attention to specific menu items. These visual cues are often used to highlight Stars or Puzzles that the restaurant wants to promote.
- Descriptive Language: Using enticing and descriptive language to describe menu items can make them more appealing. For example, instead of listing a dish as “Grilled Chicken,” it could be described as “Succulent Grilled Chicken with Fresh Herbs.”
- Limiting Choices: A large menu can overwhelm customers and reduce the likelihood of choosing high-margin items. Some restaurants use menu engineering to reduce the number of choices, streamlining the decision-making process and focusing on promoting Stars and Puzzles.
The Benefits of Menu Engineering
When executed effectively, menu engineering provides numerous benefits to restaurants and food service businesses:
1. Increased Profitability
- By identifying and promoting high-margin items, restaurants can significantly boost their profitability. Small adjustments in pricing or ingredient costs can lead to considerable improvements in overall profit.
2. Better Customer Experience
- A well-engineered menu is not just profitable but also user-friendly. By streamlining the menu and highlighting popular items, customers have an easier time making decisions, which can lead to higher satisfaction.
3. Informed Decision Making
- Menu engineering replaces guesswork with data. Decisions on what to add, remove, or promote are based on actual sales data and profitability metrics, reducing the risk of subjective or uninformed choices.
4. Cost Control
- Understanding the cost structure of each menu item allows for better control over food costs. Menu engineering highlights inefficiencies in ingredient usage or portion sizes, allowing restaurants to make adjustments that keep costs in check.
5. Competitive Advantage
- A well-optimized menu gives restaurants a competitive edge by ensuring that they are offering what customers want while also maximizing profits. This can be especially important in highly competitive markets.
Challenges in Menu Engineering
While menu engineering offers many benefits, it also comes with challenges:
- Data-Driven Decisions: Not all restaurants have the technology or expertise to gather and analyze data. Smaller establishments may find it challenging to implement a data-driven approach without the right tools, such as POS systems.
- Balancing Popularity and Profitability: Menu items that are popular but not profitable can be tricky to manage. Adjusting prices or portion sizes without alienating customers requires careful strategy.
- Changing Customer Preferences: Customer tastes and preferences change over time, so regular updates to the menu are necessary. This constant need for adjustment can be time-consuming.
- Psychological Factors: While menu psychology can drive sales, it can also be a double-edged sword if customers feel manipulated. It’s important to strike a balance between guiding customer choices and maintaining trust.
Technology and Menu Engineering
In recent years, technology has made menu engineering more accessible and precise. Modern restaurant POS systems, such as Slant POS, Toast, Square, and Upserve, offer built-in menu engineering tools that automate data collection and analysis. These systems provide real-time insights into sales performance, allowing restaurants to make timely adjustments to their menus.
Additionally, menu engineering software tools, such as MenuPro and Omnivore, offer specialized solutions for designing menus, calculating food costs, and optimizing menu layout. These tools integrate with POS systems to streamline the engineering process, making it easier for even small establishments to implement.
Conclusion
Menu engineering is a powerful tool that helps restaurants optimize their menus for both profitability and customer satisfaction. By analyzing the relationship between food costs, sales data, and customer preferences, restaurants can make informed decisions that improve their bottom line. While it requires careful planning and regular adjustments, the rewards—higher profits, better customer experience, and more efficient operations—make it well worth the effort.
Whether you’re running a fine dining restaurant, a casual café, or a quick-service chain, menu engineering offers a structured approach to menu optimization that can drive success in today’s competitive food service industry.
