Menu engineering: while the name might suggest you need to go to college at MIT to be good at it, is actually a common and essential task that all restaurateurs should regularly undertake.
Menu engineering can be simplified as the steps taken to increase the profitability of a restaurant menu. Typically, the practice is broken down into two segments: 1. Menu Pricing and 2. Menu Design Once you analyze all of your menu items’ popularity and profitability, you can carefully engage in restaurant menu planning for your customer-facing menu to maximize profits.
Before you make any changes to your menu, take the time to determine what’s working and what isn’t. Follow these two steps:
- The first thing you’ll want to do is gather sales and profit data for every item on your menu—preferably over a set time period (last quarter, last month, etc.).
- Break your menu items up by their category.
Once you’ve broken up your menu items by category, you’ll likely notice that four groups emerge from your analysis.
1. Stars: High Profit, High Popularity
The stars are the best part of the menu in both your and your customers’ eyes. They’re wildly popular and highly profitable for your business. While there’s always room for improvement, there’s a verse in the Bible that says the healthy need no doctor.
In other words, you should focus the bulk of your menu engineering work on the next three categories.
2. Puzzles: High Profit, Low Popularity
Puzzles live up to their name – they’re making your restaurant money with high profit margins, but not as much as they could be due to low popularity. The challenge is: how can you increase the popularity of these items?
A few common tricks to boost popularity of high-profit items are to:
- Make these items more prominent on your menu, on social media, or on your website.
- Instruct your servers to recommend these items wherever possible.
- Consider marginally lowering the price on these items to increase popularity without decreasing overall profitability.
3. Plowhorses: Low Profit, High Popularity
Plowhorses are a big point of frustration for menu engineers. A low profit margin suggests that the menu item should go, but high popularity means it should stay as is. What to do?
Two common courses of action to address plowhorses are to:
- Raise menu prices on these items, provided that this doesn't drastically diminish their popularity or reduce sales.
- Look into lowering ingredient cost to keep menu prices the same by sourcing less expensive ingredients or acquiring new vendors. However, don't aim to lower ingredient cost too much-this can backfire and reduce the popularity of dish.
4. Dogs: Low Profit, Low Popularity
Let these sleeping dogs lie. Every menu has a few dogs, and for that reason, they’re not inherently awful – rather a reality of the restaurant industry. Sometimes you need these staples to accommodate more niche groups, like those with special dietary restrictions or picky eaters who won’t come to your restaurant unless that one item is on the menu.
If you feel that removing the dog from your menu would be a bad thing for your business, leave it on there. However, if you can afford removing the item, it could pay off in the long run. A smaller menu means fresher ingredients, since the ingredients for the dog items aren’t sitting around waiting to be turned into a meal and aren’t taking up space in your back of house.
Cutting dogs also results in a more efficient kitchen. Look at Chili’s, for example. After making major cuts to their menu, ticket times decreased by 12%. That sort of streamlining leads to shorter wait times after ordering, faster table turn times, and more satisfied customers.
Once you’ve classified and organized all of your menu items, run a recurring cost analysis for specific menu items’ inventory and your restaurant menu pricing. You’ll want to make sure your kitchen stays efficient and that your menu is keeping your restaurant in business rather than putting it out of business.
If your restaurant uses an inventory management software, you can refer to this to track your actual inputs versus your outputs to see just how efficient your kitchen is. If you don’t have inventory management software, you can always use the food cost formula to see your actual costs versus revenue for a given time period.
For your entire menu, restaurant food cost is as follows:
Food Cost = Cost of Inventory / Revenue
For specific menu items, food cost is as follows:
Food Cost = Cost of Ingredients for Dish / Revenue from Dish
Without software, you’ll need to calculate this number consistently and not shy away from it just because it’s tedious. Monitoring food cost is an essential step in restaurant management and in accurately pricing menus.
If you notice that efforts to move more items into the star category are failing, or if your stars are losing their profitability, one way to change course is to implement a stringent inventory control system. Holding your back-of-house staff responsible for ensuring as little food as possible is wasted or stolen could be the fix your menu needs.
At the end of the day, menu engineering is only successful if you can control your restaurant food costs. If those costs fall out of control, your restaurant will surely follow.
First, you’ll want to determine which items should go where on your menu. This decision is often influenced by the criteria in the section above.
As an example, look at Five Guys. Notice how their menu lists the hamburger and bacon burgers before their “Little Hamburgers.” This is because Little Hamburgers have only one patty, while their regular burgers have two. Bumping the Little Hamburgers down the list draws less attention to them (and their lower menu prices), and instead directs guests’ attention to the higher-listed (and more expensive) hamburgers, cheeseburgers, and bacon burgers.
Next, you’ll want to use specific design tactics to draw attention to other items on the menu that you want to keep top of mind. Changing fonts and text sizes or using boxes or special characters can draw catch guests’ eyes as they’re glancing through a multi-page menu.
This is particularly applicable for your puzzles. If putting puzzles in the prime spot on your menu takes up valuable real estate, consider putting these items lower down on the menu but drawing attention with a boxed outline or shaded background.
2. Write Your Descriptions
Descriptions do make a difference. While you may think your menu items are self-explanatory, writing clear and distinct descriptions have actually been shown to increase sales by 27%, in addition to measurably improving guests’ attitude towards the restaurant and its food.
If you don’t have the resources or space on the menu to provide descriptions for all of your items, consider a description for your stars and puzzles to get more sales to these money-makers.
One restaurant that epitomizes awesome menu descriptions is Crave Mad for Chicken in Boston. Just see how much time and effort they put into writing about their namesake double-fried chicken and tell me you wouldn’t order that as soon as you sat down.
Now, it’s time to get creative and pair your profit-driven layout with a unique, on-brand menu design.
Not an artist? No problem. There are plenty of do-it-yourself, drag-and-drop options to help build your menu online, like Canva. Alternatively, you can look into hiring a freelance designer to turn your layout into a work of art.
Remember, the importance of design cannot be overstated. For first-time guests, it’s a chance to set expectations and showcase your brand in the setting of your restaurant.
One last point on menu design – consider removing the dollar signs from your menu prices (i.e. the menu price should be “10” instead or “$10”).
While this seems like a trivial thing, research from Cornell University found that guests who saw a menu where prices did not have dollar signs “spent significantly more than those who received a menu with prices showing a dollar sign.”
4. Take it Online
The good news is there’s no shortage of space online. For your website, you can upload multiple menus (i.e. brunch, dinner, and your wine list). See how Buttermilk and Bourbon, a southwestern small plates restaurant, does this below. If you’re no web developer, work with your tech-savvy employees, or hire a website development team to help build this crucial part of your website out. You should also make sure that your restaurant menu is on posted on websites such as Yelp and TripAdvisor.
You should also be cognizant of how your menu appears on sites where you have less direct control, like Google my Business or third-party ordering sites and apps like GrubHub, UberEats, and Doordash. Given that mobile online food ordering will be a $38 billion industry by next year, you certainly shouldn’t be avoiding the menu engineering work to be done online.
Activity-Based Costing and Menu Engineering
Allow us to throw one more wrench into the menu engineering discussion.
Since price has such an enormous impact menu engineering, it’s worth exploring pricing at as granular a level as you can get. This is where activity-based costing (ABC) comes in, which is a costing method that attributes costs in a restaurant to the menu items created from those specific costs rather than applying a uniform markup to all items based on total overhead costs.
As an example, a pizzeria might think about how much money it costs to run its oven each month, and then distribute the cost of gas and electricity for running that oven – in addition to all other overhead costs – to the entire menu. However activity-based costing suggests all costs pertaining to the pizza oven be only applied to items cooked in the pizza oven, just as the costs to run the fryers should only be applied to fried foods, and costs to keep the walk-in freezer running be applied only to items stored in the freezer at some point.
If the concept of activity-based costing still makes you scratch your head, check out the video below for an explanation.
To prove out this concept, a restaurant in Hong Kong that offered both individual menu items and a buffet was analyzed. The cost for the dinner buffet was 128 Hong Kong dollars, but the total cost for all menu items on the buffet was closer to 162 Hong Kong dollars from an ABC perspective.
This is a prime example as to why restaurants should consider activity-based costing in their menu engineering. Allocating costs to specific menu items results in more accurate prices and could potentially keep your restaurant in business, so track what labor, machinery, and utilities go into making a menu item – not just the ingredients.
The best way to apply ABC to menu engineering is to:
- Gather up your overhead costs for your restaurant.
- Compile your sales by menu item.
- Trace which costs can be directly attributed to each menu item.
- Fairly distribute each overhead cost to the menu items that are made from those overhead costs.
- Adjust your menu prices periodically to reflect changes in activity-based costs.
Menu engineering can certainly seem like a monumental task, but when you break down your steps, it’s not too difficult. Gathering data, sorting by profitability, attributing costs properly, organizing your menu, and getting it designed are five clear, manageable steps that all great restaurateurs have been able to accomplish – and you’re no exception!
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