6 Chapter 6- Menu Engineering

Correctly calculating and classifying the menu items on the menu engineering spreadsheet can make strategic changes to your menu to increase sales and boost your bottom line.

As shown in the last column of the spreadsheet above under Item Class, all menu items are classified as one of the four categories: Stars, Plow Horse, Puzzle, or Dog.

Identifying Profit Stars and Dogs:

• Data Analysis: You start by analyzing your sales data to categorize each menu item based on its contribution margin (selling price minus variable costs) and its popularity (sales volume). This creates a framework with four categories:
  • Stars: High sales mix category and high contribution margin category (ideally promote these!)
  • Plow Horses: High sales mix category and low contribution margin category (may need cost reduction or price increase)
  • Puzzles: Low sales mix category and high contribution margin category (highlight these with enticing descriptions or promotions)
  • Dogs: Low sales mix category and high contribution margin category (consider removing or revamping)

• Strategic Menu Design:
  • Placement & Highlighting: Once you understand your Stars and Puzzles, you strategically place them on the menu. Prime real estate (eye level) often goes to Stars, while Puzzles can be highlighted with enticing descriptions, pictures, or exclusive offers.

• • Pricing Strategies: Menu engineering helps you identify opportunities to adjust pricing. For example, you might raise prices on high-demand Stars or lower them on Plow Horses to improve margins.

• • Menu Psychology: Understanding how customers read menus allows for strategically using descriptive language, visuals, and bundling options to influence their choices toward more profitable items. 
    • Here is an excellent article from TOAST entitled The Psychology of Restaurant Menu Design [Infographic}
      • Note the Golden Triangle, when looking at a menu our eyes are naturally attracted to the center of the menu first, then the top right, followed by the top left.

• Overall Benefits:
  • Increased Profitability: By focusing on high-margin items and strategically influencing customer choices, menu engineering can significantly boost your profit margins.

• • Reduced Food Waste: Identifying and removing low-selling items can help minimize food waste and related costs.

• • Improved Inventory Management: Knowing your most popular dishes allows for better inventory planning and reduces the risk of spoilage.

• • Enhanced Customer Experience: A well-engineered menu caters to customer preferences while offering a variety of choices, leading to a more satisfying dining experience.

By implementing menu engineering, you can transform your menu from a static list of dishes into a powerful tool for driving sales and increasing profitability in your food and beverage establishment.

Here are some pointers for boosting sales using menu engineering:

Stars High Sales and High CM:

1. Display these items prominently on the menu (the Golden Triangle) as they are popular.
2. Consider a slight price increase, but do not overprice.
3. If an item is already selling well, change is unnecessary.
4. Use star items to promote additional sales by pairing them with complementary items.

Plow Horses High Sales and Low CM:

1. Be cautious when increasing prices for these items, as they are seen as excellent value.
2. Maintain quantity and quality to ensure customer satisfaction.
3. Only consider altering recipes or accompaniments if they are not noticeable to customers.
4. Consider moving these items to less prominent menu locations.

Puzzles Low Sales and High CM:

1. Give these items more visibility on the menu, for example, using a border.
2. Consider renaming or enhancing the item’s description to make it more appealing.
3. Consider removing an item from the menu if it involves high labor or waste.
4. Lowering the selling price may increase sales.
5. Pairing the item with a more attractive or popular item may improve sales.

Dogs Low Sales and Low CM:

1. Consider significantly removing these items from the menu if they overlap with other items.
2. Be cautious when raising prices, as it may not be effective for food items.
3. Lowering the selling price may help improve sales but not significantly increase profitability.
4. Consider removing the item from the menu but keeping it available for special requests if it is quickly prepared.
5. Only keep items with low sales if they satisfy a niche need or have some specific importance.

To calculate the sales mix % for each menu item

• Take the number sold of that one menu item and divide it by the total menu items sold.
• For example, if you sold 200 of one menu item and 1,591 total menu items sold. 200 / 1,591 = 12.6%
• The sales mix % for this one menu item is 12.6%
• Note: All the percentages for this column must add up to 100%

To calculate the contribution margin for each menu item

• Take the menu selling price and subtract the food cost dollar amount.
• For example, if the menu selling price was $10.00 and the cost to produce the dish, the food cost dollar amount was $3.50. $10.00 – $3.50 = $6.50
• The contribution margin for this one menu item is $6.50

To calculate total sales for each menu item

• Take the menu item’s selling price and multiply it by the number sold of that menu item.
• For example, if the menu item’s selling price is $22.99 and you sold 100 of that item. $22.99 X 100 = $2,299
• The total sales for that one menu item are $2,299
• Add up the sales of all the menu items to get the total sales dollar amount.

To calculate the total cost for each menu item

• Take the cost of making a menu item (food cost) and multiply it by the number of items sold on that menu item.
• For example, if the menu item food cost is $7.50 and you sold 100 of that menu item. $7.70 X 100 = $770
• The total cost for that one menu item is $770
• Add up the costs of all the menu items to get the total cost dollar amount

To calculate the total contribution margin for each menu item 

• Take the contribution margin and multiply it by that menu item’s sales.
• For example, if the contribution margin was $6.50 and you sold 100 of that menu item. $6.50 X 100 = $66.50
• The contribution margin for that one menu item is $66.50
• Add up the contribution margins of all the menu items to get the total contribution dollar amount

To calculate the contribution margin (CM) %

• You divide the total contribution margin for one menu item by the total contribution dollar amount.
• For example, if the contribution margin for one menu item was $66.50 and the total contribution margin dollar amount for all the menu items was 1,000. $66.50 / 1,000 = 7%
• The contribution margin % for this one menu item is 6.7%
• Note: All the percentages for this column must add up to 100%

To calculate the desired sales mix. 

• 100% / of the number of menu items in the report
• For example, 100 divided by 15 menu items on the report = 6.7
• 70% is the standard representation of expected sales (this is a standard in the industry)
• Take 6.7 X 70% = 4.7
• 4.7 is your desired sales mix

To calculate the average contribution margin (CM)

• Take the Total CM $ amount and divide it by the total of all menu items sold
• For example, if your Total CM $ is $324,000
• And we sold a total of 19250 menu items
• Our CM would be $16.83

To calculate the Ideal Customer Demand

• Total number sold / the number of menu items on the report
• For example, if 500 menu items were sold, and there are 12 menu items on the report. 500/12 = 41.7
• 70% is the standard representation of expected menu items to be sold (this is a standard in the industry)
• Take 41.7 x 70% = 29.2
• 29.2 is your ideal customer demand

To calculate the Potential Food Cost %

• Take total food cost dollar amount / total sales = potential food cost %
• For example, if the food cost dollar amount was $10,000, and the total sales were $40,000. $10,000/$40,000 = 25%
• 25% is the potential food cost %

To calculate the sales mix category

• Look at the sales mix % for one menu item, and if it is higher than the desired sales mix %, you type high in the column. If the sales mix % for that one item is lower than the desired sales mix % you type low in the column

To calculate the contribution margin (CM) category

• Look at the contribution margin for one menu item, and if it is higher than the average contribution margin, type high in the column; if the contribution margin for that one menu item is lower than the average contribution margin, type low in the column,

Now that we have classified each menu item using the calculations above, we can determine whether they are a star, puzzle, plowhorse, or dog.

• Stars: High sales mix category and high contribution margin category
• Plow Horses: High sales mix category and low contribution margin category
• Puzzles: Low sales mix category and high contribution margin category
• Dogs: Low sales mix category and high contribution margin category

Menu Pricing

Imagine you’re in a restaurant. You look at the menu and see a dish priced at $15. Does that price seem reasonable? It depends on many factors, including the ingredients, the restaurant’s atmosphere, and what other places are charging.

Menu pricing is about setting the right price for your food and drinks. It’s a balance between making a profit and attracting customers. There are a few strategies you can use:

• Psychological pricing means using numbers that sound good to customers—for example, $9.99 instead of $10.
• Price anchoring: Having a costly item on the menu can make other items seem more affordable by comparison.
• Value perception: Customers want to feel like they’re getting a good deal. A side dish or dessert with a main course can increase perceived value.

Location Psychology explains how items are placed on a menu and can also influence what people order.

• Prime real estate: Items placed at the top or bottom of the page or in the center tend to get more attention.
• Eye movement: People naturally read from left to right. Consider placing your most profitable items in these areas.
• Visual cues: Using descriptive language and images can make items more appealing.

By understanding these concepts, you can create a menu that looks good and can help drive profitability.