menu engineering


introduction

Cost-control procedures were established to keep excess cost from developing and to help keep cost and cost per-centages within predetermined bounds. However, keeping food cost percentages to a given figure (e.g.. 35 percent), while critically important, does not mean that the most profit is obtained. In the final analysis, we take dollars to the bank, not percentages. Afer all, the contribution margin of menu items determines how much profit there will be, while considering the number of customers attracted to the foodservice facility. As an example, two items found on the menu at the Grandview Bistro are Strip Steak and Chicken Albufera. Strip Steak has a standard cost of $7.50 and a selling price of $23.65. Chicken Albufera has a standard cost of $5.20 and a sell¬ing price of $16.45. It is apparent that the contribution margin of the Strip Steak is considerably higher. At this point, it will help the student to reflect on the definition for contribution margin  given as "selling price—variable cost"

Item                               Selling Price                        Cost                               Contribution margin
strip steak                       $23.65                              $7.50                                   $16.15
Chicken Albufera             $16,45                              $5.20                                   $1125
 Difference in Contribution                                                                                   $ 4.90


If the grandview Bistro were to sell 100 orders of each of these two menu items over a period of two weeks, the restaurant would obtain $490 more in contribution margin from the steak Further, it is very likely the labor cost in preparing the chicken might be greater than that of the steak. Generally, managers would rather sell items that provide the greatest contribution margin, because more profit can be obtained.
A very useful technique for analyzing menu sales and providing helpful information for evaluating every item on the menu relative to its present contribution to bottom-line dollars is menu engineering. It provides a means for monitoring the effectiveness of efforts to maximize gross revenue in a menu.


Menu engineering

the menu analysis technique described was developed by Michael L Kasavana and Donald I. Smith and was described in a book published in 1982 Known as menu engineering, the technique is now widely known and respected and has been the subject of numerous papers and articles. Although some do not agree entirely with the conclusions drawn by Kasavana and Smith, their approach to menu analysis is still timely, and is both interesting and revealing.
Menu engineering can best be explained by example. A Menu Engineering Worksheet showing sales of entree items of the Grandview Bistro for the month of February is illustrated in picture. Initially, one notes many similarities to the Menu Pre-Cost and Abstract form illustrated. Column headings such as "Menu Item Name," "Number Sold" "Food Cost," "Sales Price," "Menu Cost," and "Menu Revenues" give one a sense of familiarity. Although the terms differ slightly, these are much the same as those used on the Menu Pre-Cost and Abstract form. Specifically, the Menu Engineering Worksheet closely corresponds to the right, or abstract, side of the form.. The sources of the data and the required computations are exactly the same.

There are several additional columns that distinguish the Menu Engineering Worksheet: (C) "Menu Mix %"; (F) "Item CM"; (L) "Menu CM"; (P) "CM Category"; (R) "MM Category"; and (S) "Menu Item Classification." At the bottom of the worksheet, there are several additional computations. Both the additional columns and the computations require some explanation.

Menu Mix Percent

The menu mix percent is the same as the popularity index. The percentage for each item is calculated by dividing the number of units sold by the total number of units sold for all items. For example, 252 portions of Strip Steak were sold, and total portion sales for all items was 2635 The menu mix percent for this item is calculated as 9.564 percent In addition, 207 portions of Chicken Albufera were sold, and the menu mix percentage was calculated at 7.856 percent. The menu mix percent for each of the other items is calculated the same way
menu engineering worksheet

Column F: item CM

Contribution margin (CM) is defined as sales price minus variable cost per unit. It is another phrase for gross profit, previously calculated for Strip Steak and Chicken Albufera. Thus, the CM for Strip Steak and all other menu items is determined by subtracting the portion cost for the item from its sales price.
For strip steak
Sales price $23.65
- Food cost $ 7.50
CM $16.15
The CM is the amount available from each sale to contribute toward meeting all other costs of operation, and, when those costs have been met, to provide profit for the owner.

Column G: Menu Cost

The menu cost for the item is simply the number sold, as shown in column B, times the individual cost, as shown in Column D. It is the same as the "Total cost column in the Menu Pre-Cost and Abstract form.

252 portions of Strip Steak sold x $7.50 = $1,890 menu cost

Column H: Menu Revenues

Similarly, menu revenue for an item is the number sold, as shown in column B, times the sales price of the item, as shown in Column E.

252 units sold X $23.65 =$5,959.80 menu revenues

Column L:Menu CM

the menu contribution margin is found by multiplying the number of units sold for each menu item by its contribution margin. Thus, for Strip Steak,
252 units sold x $16.15 CM = $4,069.80 menu CM

This calculation shows the total of contribution margins provided by the particular menu item. The sum of all the individual totals is found in Box M. For the Grandview Bistro, the total contribution margins for all items for the month of February is shown as $36,056.75. This amount of money is available to be applied to all other costs in the restaurant and to provide a profit.
It is important to note that the amount shown in Box M is the contribution margins for entrees only and does not include other sales such as appetizers, desserts, and beverages. There would be a larger total menu contribution if one were to include sales of other items. The Menu Engineering worksheet shown in picture includes only entrees, because the analysis would be skewed and invalid if sales of all menu items were included in one worksheet.

Box O:Average Contribution Margin

The figure in Box O is the average contribution margin, determined by dividing the total in Box M by the total number of units sold, found in Box N. For the illustrated worksheet,the calculation is:


Average contribution margin =     Total CM
                                            Total number sold
-$36.057
   2,635
= $13.68


Box Q: Item Percentages

The figure in Box Q requires careful consideration. This is the percentage of an entire menu represented by each item on that menu, multiplied by 70 percent.
There are 16 items on the menu used for picture , so each is one-sixteenth, or 6.25 percent, of the menu. Similarly, if there were 10 items on the menu, each would be one-tenth, or 10 percent, of the total. The figure in Box Q is calculated by dividing one menu item by the total number of items on the menu and then multiplying the result bv .7 (70 percent). Thus,
1/16 x 7 = 0.4375 or 4.375%

This figure will be used when making entries in column R, as discussed in regard to that column.
The alert student will note that this percentage represents 70 percent of the average number of menu items and will be used later in our discussion to determine if an item sold more or less than the average. Some will question why 100 percent of the average rather than 70 percent is used The authors of Menu Engineering simply stated that using 70 percent of the average makes the results more realistic.

Column P: CM Category

The entries in this column, L for low and H for high, are made after comparing the contribution margin for each menu item (Column F) with the average contribution margin for the menu (Box O). If the contribution margin for a given menu item is lower than the average contribution margin, the entry for that item in Column P is L for low. If the contribution margin is higher than average, the entry is H for high. for example, the contribution margin for strip steak is &16.15, which higher than the average contribution margin for the menu. chicken albufera has a CM of $11.25, which is lower than the average contribution margin of $13,68, and the entry in column P for that item is L for low.


Column R: MM Category

The entries in Column R (L and H for low and high) are determined by comparing the menu mix percentage for each item in Column C with the figure in Box Q. For example, the menu mix percentage for Strip Steak is 9.564 percent Compared with the 4.375 percent figure in Box Q, this is high, so the entry for Strip Steak is the letter H. The menu mix percentage for Chicken Albufera is 7.856 percent, also higher than the 4.375 percent in Box Q. However, Roasted Duck Breast represents only 3.871 percent and is lower than the 4.375 percent in Box Q. so it receives an L.
Because all entries in Column P and Column R must be one of two letters (either H or L), there are four possible combinations of letters: H/H, L/L. H/L and L/H. These four possible combinations are used to identify menu items. In the special language of menu engineering, each has been given a name:
H/H is a star. A star is a menu item that produces both high contribution margin and high volume. These are the items that foodservice operators prefer to sell when they can.
L/L is a dog. A dog is a menu item that produces a comparatively low contribution margin and accounts for relatively low volume. These are probably the least desirable items to have on a menu.
L/H is a plowhorse. A plowhorse is a menu item that produces a low contribution margin, but accounts for relatively high volume. These are items that have broad appeal to customers, but contribute comparatively little profit per unit sold.
H/L is a puzzle. A puzzle is a menu item that produces a high contribution margin but accounts for comparatively low sales volume.

Because it provides a demonstration of the extent to which each menu item contributes to profitability, the Menu Engineering Worksheet can be of great use to restaurateurs who are interested in maximizing profit

The illustrated worksheet contains entree items only. The thoughtful recognize that one cannot place appetizers and desserts on the same worksheet and obtain result that are meaningful.The cost price and contribution margins for other menu items cannot be compared with entree items. If, for example, appetizers were included, the results would be skewed, because the highest-price appetizer would have a lower contribution margin than the lowest-priced entree. All appetizers would be considered either dogs or plowhorses, and it would be difficult or impossible to use the Menu Engineering Worksheet, because average contribution margin and menu mix percentages would not be meaningful.
The Menu Engineering Worksheet can be much more useful when developed on a computerized spreadsheet. After the appropriate formulas are entered in the spreadsheet, the computer will do all of the calculations. Numbers, such as menu prices, can be changed, and the computer will automatically recalculate all financial results. This provides management with an opportunity to do what-if calculations to help determine the best course of action when changes to the menu or changes to prices are made.
Several of the restaurant management programs incorporate menu engineering. Among those that do are Silverware POS Inc. and Compeat.These programs make it easy to carry out what-if scenarios, Managers can substitute new prices, menu items, or qualities sold to determine teh effects on food cost percentages, average contribution margins, and sales.



Menu Analysis

Description of Stars, Plowhorses,Puzzles, and Dogs

Having completed the worksheet, a restaurateur can use the general guidelines offered in the following paragraphs to analyze the list of menu offerings and then determine the changes, if any, that would improve the menu.

Stars

Stars are both profitable and popular and should normally be left alone, unless there is a valid reason for change. Because of the popularity of stars, it is sometimes possible to increase their menu prices without affecting volume, thus increasing their profitability.

Plowhorses

Plowhorses are popular, but relatively unprofitable. They should be kept on the menu, but attempts should be made to increase their contribution margins without decreasing volume. A possibility is to decrease standard portion size slightly while improving the appearance of the product. Another is to raise prices on such items, assuming that the volume of those items will not be adversely affected to any great extent,


Puzzles

Puzzles are comparatively profitable, but relatively unpopular. They should be kept on the menu, but attempts should be made to increase their popularity without decreasing their profitability substantially. There are any number of ways to do this, including repositioning items to more favorable locations on the menu, featuring items as specials suggested to diners by servers, and changing the appearances or menu descriptions of these items to increase their appeal.

Dogs

Because dogs are both unprofitable and unpopular, they should be removed from the menu and replaced with more profitable items unless (1) there Is a valid reason for continuing to sell a dog (as with an item that promotes other sales) or (2) its profitability can somehow be increased to an acceptable level. This will require that the item be changed in some way. One way of changing an item from a dog to a puzzle is to increase contribution margin per unit, which may be done by increasing sales price.
The Menu Engineering Worksheet in Picture 1 shows the following:

Stars: Strip Steak, Tournedos Rossini, and Steak Diane.
Plowhorses: Ginger Shrimp, Tea-Smoked Salmon, Pan-Seared Chicken, Chicken Albufera, Trout Grenobioise, Shrimp a la Marseille, Fruits de Mer, and Catch of the Day.
Puzzles: Roasted Duck Breast, Parmesan Veal Steak, Loin of Pork, and Lamb Chops
Dogs: Vegetarian Burrito

However, all stars, plowhorses, puzzles, and dogs are not the same. Some stars are truly outstanding, with very high volume and very high contribution margins. Examples of this are Strip Steak and Tournedos Rossini. Tea-Smoked Salmon, on the other hand, has very high volume, but its contribution margin is $13.45, very close to the average of $13.68. If its price were raised $0.25, it would be in the star category. Duck Breast, by contrast, is classified as a puzzle, yet its contribution margin is $14.10. if its price were just $0.42 lower, it would be in the dog category.

Graphic Representation of Stars, Plowhorses, Puzzles, and Dogs

It is possible to better visualize the differences in the items by plotting them on a chart, as we have done in picture 2. The numbers sold are shown on the vertical line at the left of the chart, and the contribution margins are shown on the horizontal line at the bottom of the chart. The horizontal line going across the chart at the 115 number, which is 70 percent of the average MM, represents 4.375 percent, the cutoff point that determines whether an item is classified as high or low for volume. All items shown above the 4.375 percent line are classified as high, and all items shown below the 4.375 percent line are classified as low The vertical line in the center of the chart represents the cutoff point that determines whether an item is classified as high or low for contribution margin. All items shown to the left of the line are classified as low, and all items to the right of the line are classified as high. We have placed each item in its approximate position on the chart so that a visual picture of all items can be shown.

graphic representation of stars, plowhorses,puzzles and dogs

Thus one can see that some items—Loin of Pork, Vegetarian Burrito, Veal Steak, Lamb Chops, Duck Breast, Shrimp a la Marseille, Fruits de Mer, Ginger Shrimp, and Salmon—are very close to becoming classified in another category.

Using the Categories to Alter Menus

Having completed the Menu Engineering Worksheet and the Graphic Representation of Stars, Puzzles, Plowhorses, and Dogs, it to analyze the menu and make changes that will improve contribution margin how ever before doing that the student should recognize that changes aimed at improving conitribution margins might have effects on customer selection of menu item as well as the number of customers attracted to teh establishment. according to break even analysis, if prices are raised, it is possble that customers will view the menu as expensive, and the result could be fewer customers. Further, customers who normally order a particular item with a low contribution margin might be unwilling to purchase that item at the higher price and might order an item with a lower price and a lower contribution margin. If management removes an item from the menu because it has a low contribution margin, some customers might be very disappointed and choose to dine elsewhere.
Management must be very careful in making changes in menu items and menu prices. Generally, it is wise to make small changes rather than large ones. Small changes are more readily accepted than large ones by restaurant customers. However, sometimes changes in menu items result in positive reactions by regular customers, as they frequently get tired of looking at the same menu selections. This is one of the reasons why many restaurants have daily specials. They want to add variety to the menu.
The average contribution margin for the Grandview Bistro was calculated at $13.68. Because it is an average, one must recognize that it is impossible for every item on the menu to have a contribution margin that is above that average. No matter how much the average is increased, there will always be items with contribution margins below the average.

picture 3 and 4 show the results of changes made in the menu for the month of march after following the guidelines.


1. Dogs. Vegetarian Burrito was replaced with Vegetable Tostada prior and larger contribution margin. This action resulted in the vegetable dish becoming a plowhorse, as it was more attractive to customer

2. Plowhorses. Menu prices for pan seared chicken, chicken albufera, shrimp a la marseille, trout grenobloise, and catch of the day were increased $0.50. this resulted in somewhat fewer sales of these items. however, customers ordered the new items with higher contribution margins.

3. Puzzles. Veal steak was replaced with veal picatta and was more prominently displayed on the menu. it became a star. roasted duck breast was altered to duck a lorange to make it more attractive. This resulted in the duck also becoming a srar. Lamb chops was left alone. it is an item that has a high contribution margin and is cooked to order with no waste.

4. Stars. These items were left alone. some of them had slightly lower sales as customers opted to order the new menu items with sbove average contribution margins.
menu engineering worksheet 2


graphic representation of stars,plowhorses, puzzles and dogs



The overall result was an increase in the average contribution margin from $13.68 to $13.92, with a substantial increase in total contribution margins. There was a small gain in the number of customers. All of the dogs were eliminated. Further, the food cost percentage was reduced from 32.11 percent to 31.46 percent, a positive improvement. Customers welcomed the changes.
The effects illustrated here show clearly the value of menu engineering as an analytical tool that can be used for many purposes. It is possible to make menu changes that will increase menu contributions as well as customer satisfy satisfaction.

courtesy- principles of food and beverage and labour controls by paul r. dittmer and j. desmond keefe III

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