Restaurant Menu Engineering: The Holy Grail of Restaurant Food Costing
Restaurant operators often spend many hours and a fair part of their careers chasing after a good Menu Engineering System. Why is it so elusive? Let’s start by defining it and what a good system can do for your restaurant; then we’ll look at what’s required of an operator to achieve timely, accurate, and actionable results.
- What is Menu Engineering?
- Recipe Cost vs. Menu Engineering
- Menu Relationships
- Why Menu Engineering?
- Menu Engineering Excel Template Download
What is menu engineering?
Menu Engineering is the practice of identifying the relationship between the sales and profitability of each menu item in your restaurant, then making sure you actually use the information to sell more of the right items and make money while you’re at it.
The operative word here is relationship. Whether in your personal or professional life or in the simple understanding of whether your Buffalo Chicken Wings make you any money; as the word implies, there’s more than one person, or key metric to keep an eye on.
Accurately identifying and understanding these relationships is what makes Engineering your Menu about as difficult as a hole-in-one. Consistently managing this task is the outcome of the system you’re using to obtain your results.
Recipe costing vs. menu engineering
Clients will often profess that they’ve engineered their menu to a 30% cost (or whatever percentage is located at the bottom of their spreadsheet).
When asked how they came up with the individual menu item costs they always (and I mean always) say a variation of the following: “It’s the recipe cost” or “I totaled the recipe cost for each item and calculated the average of all of my items.”
Recipe Cost and Menu Engineering ARE NOT THE SAME THINGS. Period.
Costing recipes is like a photographic snapshot. In order to obtain a recipe cost, one must take the sum of individual pricing for the raw ingredients and divide their sum by the selling price of that item.
EXAMPLE: Using our Buffalo Chicken Wing example below we can see that sum of our ingredient cost is $1.45 and the selling price for this item for $8.00. Thus the cost is 18.13%. This leaves the margin (amount of money you make on an item) $6.55 or 81.87%. What’s important to remember is much like a snapshot, these numbers represent a specific moment in time. This is the foundation.
Proper Menu Engineering Calculations
#1) MENU ITEM RECIPE COST:
Let’s state that recipe costing is like a photographic snapshot, therefore making the Menu Engineering process that of a video, there’s movement over time. Let’s take the recipe above and add some movement over time.
#2) MENU ITEM SALES:
You’ll see from our example below that we’re looking at 12 weeks of Buffalo Chicken Wings Sales (in blue). The recipe cost is displayed over the same 12 weeks as a trend line (in orange). You can see that while the sales of the Buffalo Chicken Wings are rather consistent, the cost of the item is not. In fact, it varies greatly.
Remember this rule: When costs go up, margins go down. In fact, in this example (which is real) the cost on this item kept increasing to the point where it had to be pulled from the menu and replaced by an item having a profitable contribution margin. This is why understanding the relationship between recipe cost and menu item sales is so unbelievably importan
How a good menu engineering system can benefit your restaurant
Did any of the following swirl through your cranium as you asked yourself this question?
- It can provide you with the ability to proactively recognize high-selling items where product price fluctuations have reduced the margin. We call this Reprice |High Sales, No Margin|: Popular selling items that no longer carry a profitable margin can bankrupt your business. We like to call this drowning in a teaspoon of water. Pay attention to your menu pricing.
- It can also identify items that are very profitable however they don’t sell as well as other items. We call this Replate |Low Sales, High Margin. An example of an item meeting this profile is a Hummus Plate on a bar Appetizer menu. Typically it’s the lowest selling item (as compared to Wings, Mozzarella Sticks, Potato Skins, etc.) Sometimes called the Veto Vote. These items can often be rebranded or merchandised differently through menu descriptions and menu design in hopes of increasing sales.
- It can identify menu items with high profitability as well as great sellers. We call this Retain |High Sales, High Margins|. Items meeting this profile need to be on the top of everyone’s mind – items you want to sell. For example, when a guest asks, “Hey what’s good here?” The answer from your sales team member better be one of these items. Furthermore, your Chef or Kitchen Manager needs to keep an eye on the ingredient costs for these items in order to avoid them from slipping into the dreaded Reprice Category.
- It can inform you of items that just don’t sell and they also don’t make you any money. We call these items Rethink |Low Sales, Low Margin|. I had an Osso Buco on my menu. It sold miserably as compared to the other items in my Entrée Category and it carried a pathetic margin. I was faced with a two-front battle. I had to first see if it was worth trying to better merchandise the item and then I needed to redo the recipe in order to increase the margin. I ended up going to my sales team for their buy-in. They provided me with the feedback I needed which included guest feedback that influenced the recipe modifications. The item was rebranded as a reoccurring special only and we made some money (side note: My Father wasn’t happy about the modified Osso Buco as the original recipe was his)!
RELATIONSHIP EXAMPLE: Here’s an example of a menu engineering martix, the relationships that we’ve been describing above. Each bubble represents a menu item in a specific Sales Category. You’ll see each of the quadrants. Retain (upper right, green), Replate, Rethink and Reprice and the items that fall into them based on their sales and margins. Please note that I’ve highlighted our Buffalo Chicken Wings from the previous example in the menu engineering chart below.
What keeps most restaurant operators from successfully engineering their menus is the amount of work that is required to do it correctly and consistently. Keeping the information up-to-date is a virtual nightmare if you don’t have a system that does the heavy lifting for you.
Please don’t misunderstand me. I’m not trying to deter you. I’m hoping that at this point you’re committed to engineering at least two of your menu items with high popularity. I’ve included a standard recipe cost card that will help you build the foundation we discussed earlier.
You’ll also need a product mix report (if you can, separate it by Sales Category) for the last month. This will give you a good Sales and Cost bases that you’ll need in order to begin your engineering process. Each week you’ll need to update your item sales and your cost for each menu item. I bet you’ll be surprised at the dollar fluctuation from the increase in cost and decrease in Margin. Now imagine performing the process for all of your menu items.
DOWNLOAD THE MENU ENGINEERING EXCEL TEMPLATE BELOW:
To get started in your journey, download the menu engineering spreadsheet here.