Not the best title in the world, I’ll grant you, but I’m listening to the Misfits as I type this and the song “Nike A-Go-Go” is on. Sometimes these things just flow out of me and I can’t control them.
Anyways, today we’re going to talk a bit about menu engineering (click the link right before this for a Cliffs Notes version!) and how you can use it to your advantage. Well, specifically we’re going to talk about how evaluating how your menu items are performing with some ideas on what to do based on this analysis.
At a later date we’ll be getting into menu design (again: Cliffs Notes version) and leading your customers towards your more profitable items through a variety of subtle (and not so subtle!) tactics. But that’s a whole other ball of wax. And I can’t believe I just typed that. Ahem. Moving on.
LET’S START AT THE BEGINNING
So menu engineering, at least as we know it today, was developed by Dr. Michael Kasavana and Donald Smith in the early ’80s at Michigan State University. Kasavana and Smith took Boston Consulting Group’s matrix conceptualization model and applied it to foodservice; specifically, to evaluating the performance of menu items. They did this by sorting each item into said matrix conceptualization model (aka: a chart) that looks like this (though decidedly not as awesome).
Let’s break these categories down a bit, and then we’ll talk about how to go about assigning your menu items into the proper one.
- Stars: These items are very profitable and very popular. Ideally, these would be some form of signature dish, and you should be using them as the basis of your menu.
- Cash cows/workhorses: These terms are used interchangeably, depending on who is making the fancy-pants chart. Anyways, these items are very popular, but have a lower profit margin. More on this in a bit.
- Puzzle/challenges: Again, interchangeable terms, but this time they denote items on your menu that have a high profit margin, but aren’t particularly profitable. And again, more on this in a bit as well.
- Dogs: These items are low on profit and popularity.
DETERMINING WHICH MENU ITEM GOES IN WHICH CATEGORY
First, for the moment we’re going to disregard your food cost percentage entirely, and instead focus on your contribution margins (hearkening, in a way, back to an earlier post that touched on contribution margins vs. percentages). Next, you need to pick a specific time period from which you’ll pull your numbers. I would recommend doing this exercise weekly, if possible, but you’ll definitely want to do it at least once a month.
So here’s what you’re going to do. First, pick a menu category. Let’s say appetizers for now. List them out in a grid (Excel is great for this) with the following information, going across a line for each item:
- Item Name
- Number Sold (during the specified time period)
- Popularity percentage (leave this one blank for the moment)
- Food Cost
- Sell Price
- Item Profit (which is your sell price minus your food cost)
- Total cost (your food cost multiplied by the number sold during that time period)
- Total Revenue (your sell price multiplied by the number sold during that time period)
- Total Profit (your total revenue minus your total cost)
Now that you’ve done that, let’s get a few baseline numbers.
First, add up to the total number of items sold. Then, add up your total costs, your total revenues and your total profits. To get your food cost percentage, divide your total costs by your total revenues, then multiply by 100. To get your average item profit, divide your total profits from all your items by the total number of items sold.
Next, it’s time to fill in those popularity percentages.
To get your popularity percentage on a given item, simply divide the number of that item sold by the total number of all items sold, then multiply it by 100. Go ahead and fill those in now. It’s okay, I’ll wait.
…Done? Cool. Now let’s use these numbers to assign high and low values to an individual item’s popularity and profits. We’ll do profits first, since that one is easier; simply compare an item’s profit (again, sell price minus food cost) to the average item profit. Is it higher? Then you can mark it as a high profit item. Vice versa if it’s lower.
Now, let’s do popularity. First, let’s determine an average popularity percentage by dividing 100 (as in “100%) by the total number of items in your appetizers category. Let’s say that number is 8. Your average popularity percentage is going to be 12.5. Now compare that to the Item Popularity Percentage that you calculated a few steps back. If this number is within 80% or more of our hypothetical 12.5, which in this example is 10 or higher. So if an item’s popularity percentage is 10 or more (again, in this specific example), you can mark its popularity as being “high,” vice versa if that number is below 10.
Any item that’s high profit and high popularity is, obviously, a star. Let that gravy train keep-a-rolling.
Conversely, any item that’s low in popularity and profit is a dog. It’s time to start thinking about ditching that and potentially replacing it with something new.
Your workhorses are the menu items that have high popularity but low profitability. Your goal here is to find a way to make it more profitable without killing its popularity. This can be as simple as increasing its selling price or as elaborate as having your chef make subtle ingredient substitutions in order to lower the food cost.
The puzzles are items that have high profitability but low popularity. The object here, obviously, is to find a way to make it more popular. You can attempt this through menu design (which we’ll be going into in-depth in the near future) by trying to lead your customers to the item (after all, maybe it’s buried in the middle somewhere) or renaming it something more appealing.