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Menu engineering is a way of evaluating a restaurant's menu pricing using sales data and food costs to guide which dishes to highlight and menu pricing. Armed with this data, menu engineering involves categorizing menu items by their popularity (sales volume) and profitability.
To properly engineer a menu, you need a solid grasp of prices and food costs per portion and contribution margin for each menu item. With this, restaurant operators can categorize menu items and see which items contribute more to profit and which ones aren't pulling their weight and need to be reconsidered or removed from the menu entirely.
In summary: Menu engineering is a set of exercises that ensures every food and beverage item on your restaurant's menu is profitable, popular, or both.
How to engineer a menu and maximize profit?
While the duration varies depending on your menu size, menu engineering can be broken down into five broad steps.
First and foremost, you should choose a time frame to analyze. For restaurants that change their menus based on product seasonality, it makes sense to do this simultaneously while preparing new seasonal menu items. Restaurants that rarely change their menus can revisit their menus less frequently.
Still, never make the mistake of never reviewing your menu pricing again. Food costs fluctuate and menu prices need to reflect this. If your food costs increase while your menu price stays the same, your gross profit margin shrinks and you'll earn less from sales.
The three important metrics you need to measure menu item profitability are food cost percentage and contribution margin.
To find your food cost per portion, you need to list the ingredients used to make a dish, how much of each ingredient you use, and how much it costs. Include everything down to spices and garnishes.
Using analytics to determine menu item popularity
Using data fed from your point of sale to understand your menu's performance will give you an advantage when it's time to update your menu. Most POS systems have reports that show how much of a menu item you've sold over a specific period. It's crucial for redesigning your menu and getting actionable insights to understand what's working and what's not.
Once you know how much of each menu item you've sold within a specific period and its contribution margin, you can categorize them in a menu matrix by popularity and profitability.
Menu items will fall into one of four menu engineering categories. Once complete, a menu matrix gives you a clear understanding of which menu items are responsible for your profit, which ones aren't, and which ones need to be reworked or removed from your menu entirely.
A menu engineering matrix will help you determine which products are good for your business. More importantly, it will help you determine which ones you need to focus on more. Throughout the process, you need to place all menu items into one of four menu engineering categories. You can only do this after calculating how much of each menu item was sold in a specific period and the profit each one provided. You can then use this data to plot the item in a menu engineering matrix.
A menu engineering matrix is a chart on which you need to place each item based on your findings in terms of popularity and profitability. You can determine popularity by the quantity of food sold within a specific period, and profitability is the item's contribution margin. The matrix is divided into four categories:
Dogs
A menu item falling into the "dog" category means it has both low profitability and low popularity. They tend to be very costly to make, whether in terms of labor or ingredients. Additionally, they are not very popular among diners. Consider whether you can modify dishes that fall into this category. If they continue to fail, you should either move their position on the menu or eliminate them as an option entirely.
Plow Horses
Items in this section have low profitability but are popular among customers. Although the ingredients used are more expensive, the product sells well, so you need to be careful when adjusting the recipe. You may find suitable alternatives that don't noticeably affect the menu item.
Another option to consider is portion size. You should already be tracking how much food is wasted, including from each meal. If leftovers from a dish in the "plow horse" category are common, you might consider reducing the portion size. If you decide to take this approach, the portion change should only be small, as a noticeable reduction could upset customers expecting a larger portion size.
Puzzles
Puzzle menu items are items with high profit but that don't tend to sell particularly well. You want to increase their popularity among consumers. This can be done by listing the food item in a different place on the menu. Research shows diners look at the upper right corner of menus the longest. Therefore, it makes sense to position high-profit items here, especially if they're not selling well currently. Over a specific period, you should evaluate the change in the item's popularity based on its new position on the menu.
Stars
Star menu items have high profitability and popularity. This means they are cheap to make and are already very popular among your customers. As for items in the star category, it's best to leave them as they are and continue promoting them as you already do. Make sure they're visible on your menu since they're clearly a popular choice. Ideally, you should aim to make every item on your menu a star.
Now it's time to use your menu matrix to reconsider which dishes to include in your new menu design and layout.
In addition to quantitative data, it's also important to collect qualitative data and feedback from your servers and customers.
Ask your servers which dishes they usually sell the most, which ones they have trouble selling, and which dishes receive negative feedback from guests. Consider sending surveys to your customers. What do they like about your restaurant? What would they like to see improved? What are their favorite and least favorite dishes? Do they think there are enough options?
The only way to know is to ask. Use both quantitative data from your menu matrix and anecdotal information from surveys and conversations with staff to further inform which menu items make the final cut for your redesigned menu.
After you've finished redesigning your menu and the menu has been live for about a month, look at your sales data to see if the changes you made had a financial impact. Did you sell more of your puzzles and stars? Did you make more profit that month compared to previous months? Were your food costs lower?
Depending on what you find, you can continue to swap out old dishes and try new dishes and reconsider your layout. The funny thing about restaurant menus is there's always room for improvement.
When testing, track your results to learn what works and what doesn't.
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