Is Additional Revenue Hiding in Plain Sight? How Menu Engineering Can Increase Your Profits
We’ve told you how you can boost your earnings through new revenue streams like Resy At Home’s virtual events and pickup. But we also want to ensure you’re capturing every potential dollar by taking an analytical look at your existing menu offerings. To get expert advice on the field of menu engineering, which is the process of updating your menu to enhance profitability, we connected with Lisa Slawson, Restaurant Operations Consultant for Resy partner US Foods. Slawson has over a decade of experience working in restaurants on-site, at the corporate level, and as an advisor. She shared her best practices for running a menu engineering analysis, incorporating those findings into your menu’s design, and factoring in the additional costs associated with COVID-19.
What’s Cooking? Start Your Analysis By Understanding Your Recipes
The whole process of menu engineering starts by looking at each of your individual dishes and knowing the exact recipes and quantities used to create them. Slawson walks us through an example that assumes the restaurant we’re analyzing is a burger joint. “Let’s say I’m looking at my cheeseburger meal, and it comes with a side of fries,” says Slawson. “How many ounces of fries does it come with? How many ounces of lettuce, tomato, slices of onion, and pickle am I using? It’s important to be honest and consistent.”
In Slawson’s experience, a lot of restaurants may not have this level of consistency and detail in their recipes. “Maybe they have a cook that’s been helping them for a long time, or they know it in their head, but they don’t actually have any kind of organized system or recipe book,” informs Slawson. “This is the time to change that.”
Once you have your recipe information, you also need to gather the sale price of each dish. Then input this data into either specialized menu engineering software or a spreadsheet to run the necessary calculations. US Foods customers automatically get access to Menu Profit Pro, a software developed specifically to help you measure your food cost as a percentage of the revenue, food cost in dollars, and gross profit. You can find more information on the recommended calculations here.
Slawson cautions against looking at average food cost as a whole rather than going through each menu item in detail. “By only looking at food cost in total rather than at the individual item level, operators can see the forest but not the trees,” says Slawson. “And in this case, it’s the trees that make the difference.”
Trim the Fat by Making Changes to Underperformers
A menu item should be considered a food cost percentage underperformer if the food cost makes up greater than 28-33% of the revenue of the sale of that item. Slawson says this percentage can vary slightly depending on the type of restaurant you’re running, but if your food cost is much higher than these percentages, you should consider making changes to increase the profit for that item.
Since food cost percentage is a measure of food cost divided by food sale price, we can change the percentage by updating the top or bottom half of the equation. The fastest and easiest way to do this is to raise your price, increasing the denominator and thus decreasing the food cost percentage. But if this is unpopular with your diners or doesn’t make sense for the item in question, Slawson recommends other ways to decrease your food cost.
First, she advises looking at the individual ingredients and seeing what you can tweak. “If you’re using an 8 ounce filet for your salmon dish, can you change that to a 6 ounce filet? You want to keep the value perception there, but downsizing the portion of the most expensive ingredient and adding in more of a less expensive ingredient, like vegetables, can make a big difference.” Slawson cautions against the temptation to switch to lower quality ingredients to save money unless you can maintain the integrity of the dish and the diner experience.
Layer in Popularity in the Menu Engineering Matrix
After you know how profitable your items are based on food cost percentage calculations, you’ll want to find out how popular each item is by looking at total sales. This will help you place each item on the menu engineering matrix created by Michigan State University’s Dr. Michael Kasavana and Donald Smith in the early 1980s. The graph, based on BostonConsulting Group’s matrix conceptualization model, categorizes menu items as stars, plowhorses, puzzles, and dogs using popularity and profitability as qualifications.
Stars are highly profitable and popular; any operator would be lucky to have a menu full of stars. Regarding plowhorses, Slawson says, “They might not make you as much money, but they’re really popular. Another term for these used by many industries is loss leaders.” Your puzzles have potential because they’re profitable but they aren’t selling as well, but your dogs may be lost cases as they are unpopular and unprofitable.
Rewrite Your Menu with Fresh Perspective
“Your menu is the most valuable piece of real estate in your entire operation,” urges Slawson. Now that you have your menu items sorted into the categories of the menu engineering matrix, Slawson recommends taking stock. “What is a waste of space? Do I need to get this dog off my menu and add something more profitable in this space? Should I market my puzzles more aggressively?”
Slawson recommends putting your most popular menu items at the top and bottom of your menu page, which forces guests to read through all of the items and may expose them to new dishes that they hadn’t considered before. She also recommends adding an icon or stand out box around the most profitable item in each category, highlighting them as house favorites or signature items to give them extra attention.
Another small tweak you can make is removing dollar signs from your menu. “People associate dollar signs as literal money, so getting rid of them and embedding the prices directly into the menu descriptions removes some of the hesitation in ordering,” says Slawson.
Factor in the Impact of Changes from COVID-19
With many restaurants pivoting to takeout and delivery during this time, Slawson says it’s important to take into account the costs of PPE and packaging when looking at your overall costs. “A lot of people don’t feel like it’s fair to charge their customers more for food that is taken out of the restaurant and eaten at home, so they don’t change the cost of the item despite the additional cost of packaging,” says Slawson. “So they’ll use the cheapest type of packaging, and by the time the food gets to the customer, the integrity of the dish is lost completely and complaints start rolling in.”
Instead, Slawson recommends springing for higher quality packaging and increasing prices on your take out and delivery menu to account for the additional cost. But transparency in the process is key. “I recommend telling customers you’re charging 10%, or whatever the number is, to account for packaging costs. Most people are reasonable and will understand that it makes sense. You also have to think about delivery costs – if you’re using a third party for delivery now, they charge 20-30%. Many operators will add on a delivery charge to account for that, but they don’t think about a surcharge for the packaging, which makes a difference.”
To learn more from the US Foods team about how to increase revenue and profitability in your restaurant check out their webinars on topics like Metrics that Matter, Moving Forward: Calculating Cash Flow and Engineering a More Profitable Menu.