Why is Menu Engineering so Important for a Restaurant?
I can bet that you are already overwhelmed with terms like “menu engineering”, and you really just want to run your restaurant business, make it profitable and enjoy the journey.
But hold on, that’s what menu engineering is all about! It’s about running a profitable restaurant business, and enjoying the process.
In this blog post I’ll explain what Menu Engineering is, why it is important, and how it can help you boost your restaurant’s sales and increase your profitability.
Menu Engineering vs. Menu Design vs. Menu Development
These three terms are already confusing and they are often used interchangeably. However, they are not the same thing.
Menu Development is basically the process of thinking through, experimenting, developing and perfecting your recipes which will eventually become dishes that you offer. It is the starting point. You can’t open a proper restaurant without developing a menu.
Menu Design is the next step following development. It’s how you represent your dishes in images and words and how you place them on the menu for your customers to take their picks.
Menu Engineering involves how you price and structure your menu in a way that your customers are happy and your business is profitable.
Menu Design and Development are both forms of art. Menu Engineering on the other hand is more of a science. You may the best dishes, and the most beautiful designs and crafted words to describe them, but if the structure is not done right you may be losing money.
Why is Menu Engineering more of a Science?
Menu Engineering involves a number of scientific disciplines including:
- Economics: Especially the concepts of price/demand elasticity and complementary vs. substitute goods. Ever thought why bars give you peanuts for free but charge you for water? When you eat peanuts (a complementary good) you become thirsty and you drink more beer which is profitable, but when you drink water (a substitute good) you’re not thirsty anymore and you won’t drink more beer.
- Math and Statistics: Especially models and spreadsheets that are used to analyze detailed data of restaurant sales
- Psychology: Especially behavioral analysis and ways to manipulate it – think decoy dishes, use of negative space, limiting choices, and predicting eye movements.
Why is Menu Engineering so Important?
Studies have shown that 60% of restaurants don’t really do any form of menu engineering, while 30% of them do it with little effort, and around 10% put in some high quality efforts.
A well-engineered menu can make a good profitable restaurant, but a badly-engineered one (or one that is not engineered at all) can easily drive a restaurant out of business.
You can leverage menu engineering to:
- Increase the profitability of your restaurant by getting customers to order more of your profitable dishes
- Boost the sales of your restaurant by getting customers to order more items that they normally would
- Delight your customers by delivering a wholesome experience and the feeling of receiving good value for money
How to do Menu Engineering?
There are some prerequisites to doing any sort of menu engineering:
- Cost Information: You will need to know the cost of each dish which then enables you to know the gross profit margin (or contribution margin) for each. For this you need to have a standardized recipe for each dish which shows all the ingredients and wastage that go into preparing it along with quantities and costs. This will allow you to know which are the least and most profitable items on your menu.
- Sales Information: You will need to have granular back-data on your sales, especially quantities sold of each item, with the ability to sort and filter by date and time. You can pull this kind of information from your Point-of-Sale POS systems if you’re not doing so already for your periodic reports. This will allow you to know which are the least and most popular items on your menu, and also identify any patterns or trends or spot seasonality.
Once you have the data you then plot it on a two axes chart where the X axis is for profitability, and the Y axis is for popularity. Each item you offer becomes a dot on the chart. This is called the popularity / profitability matrix, and it will allow you to identify:
- High Profitability – High Popularity items, known as Stars – These are items you should highlight and promote
- Low Profitability – High Popularity items, known as Plow-Horses – Find ways to make these more profitable or create more profitable variations of them without losing popularity
- High Profitability – Low Popularity items, known as Puzzles – Try to understand these dishes more, reinvent them or represent them better, or try to lower their prices
- Low Profitability – Low Popularity items, known as Dogs – These are items you want to emphasize less and find ways to make them more profitable
Try to change on or few things at a time, then monitor and repeat the process. This way you’ll be able to identify what change is making an impact.
Enlist the help of a Restaurant Consultant
Restaurant consultants are always available to help you reengineer your menu. They have worked with hundreds of restaurants and their experience counts. They are also equipped with proven tools and processes that can help you ensure tangible results.
If you need help with your next menu engineering exercise, don’t hesitate to get in touch with us here