Menu engineering is a sales analysis methodology that uses two key factors of performance in regards to the sales of individual menu items:
- Gross profit percentage (GP) contribution
Menu items can be assigned one of four categories.
- A popular menu item contributing a high cash GP contribution are assigned cash cow status.
- Menu items that are popular but contribute a low cash GP are allocated star rank.
- Menu items with low popularity however contribute a high cash GP are known as puzzles.
- Dishes with a low approval and a low cash GP contribution are consigned dog position.
This approach enables you to view graphically the cash contribution position for each dish. Some electronic point-of-sale (EPOS) software packages will do this for you. To be able to calculate a menu item position you need to know the cash weighted average cash GP category plus sales percentage category. Sales percentage for an item is calculated in relation to the menu average.
Let’s suppose your menu has ten items, one item represents 10% if this item exceeded sales of 10% it’s reasonable to assume this menu item is popular. An item selling below 10% could be classified an unpopular item. The floor with this approach half the menu items wouldn’t reach the 10% mark and you’ll probably spend most of your time revising your menu.
Kasavana and Smith (1999) suggest 70% formula. Items reaching 70% of menu sells are categorised as high. For example a 10 item menu, if one item represents 7% or more of sales (7/70=0.1 [0.1×100=10%]) this item can be allotted high popularity. You should note the choice of 70% is a subjective figure i.e. a degree of common sense is required.
How to interpret categories
- Cash cows are popular and may be able to yield a higher GP either by increasing menu time price or decreasing menu item costs. However an actual or perceived slip in menu item standards could be detrimental to sales. Such dishes should have a high menu visibility.
- Stars are dependable sellers again they might be able to yield higher GP. These menu items should have a lower menu visibility.
- Puzzles are exactly that. You may have a menu item that creates a great sense of theatre consequently this attracts customer interest to purchase for example a flambé dish. Depending upon the item you could accept your good fortune or increase the theatrical experience and or increase the price.
- Dogs represents menu items with poor sales. Provided you judge the menu item as having merit therefore you wish the item to remain you could add the item to another popular item as a special meal offering. This strategy may provide you with a low cost way of adding special promotions to the menu.
What are the limitations to menu engineering?
Elasticity of demand
One of the principal challenges with adjusting your prices is not knowing how demand for the menu item will be affected. You can alter a similar item and sales remain strong yet change another and sales diminish. The change in price may have sales implications for the entire menu. Any benefit gained for one item may be offset by changes in demand for another menu item. Common sense, experience and knowledge of the operation must be applied to menu price changes.
The most critical elements in menu engineering is cash gross profit and labour. A flambé dish may generate a higher GP when compared to other dessert items however cost in the labour element and the implications upon service at peak times a simple dessert may prove more profitable.
Calculating food cost should factor in the perishable nature of some ingredients, as well as wastage through spoilage during slack times. Your calculations should be regularly reviewed.
Variations in demand
Consumer demand is fickle and can change without warning. Promotions in menu item mix based on client purchasing behaviour may sustain demand if client mix remains similar for long periods of time. However changes in the nature of your customer base may mean these new customers do not respond to changes in the sales mix.
Menu engineering principals can be equally applied to beverages menu. It’s worth noting for example house wine often offers the highest GP percentage contribution however often makes a low cash gross profit. The technique can also be applied to selling hotel rooms and evaluating changes in rates made in light of demand (yield management).
While menu engineering does present some negatives they are benefits.
- Control of cash GP has to be continuously monitored.
- Develops knowledge of which menu items to promote for example which items sell the amount of GP each item contributes to the overall menu.
- Menu engineering requires an analytical focus a recognition that menu items belong to distinctly dissimilar groups with different characteristics which means they is a requirement to manage menu items differently in context of cash gross profit control.