Menu Engineering and Analysis

Chapter 11

Evaluating the Menu

There are a large number of methods

Analyze the profitability of a menu Pricing structure How does the sale of this menu item contribute to the overall success of my operation?

Seek the answer to the question:

Menu Engineering

Seeking to produce a menu that maximizes the overall contribution margin What is a good menu?

Two measures:

Popularity items ordered frequently Profitability generates a high contribution margin

Menu Engineering (continued)

Menu Engineering process classifies menu items into four types

Stars - Highly popular and profitable Plowhorses - Not highly profitable but popular Puzzles - Profitable but not very popular Dogs - Not very profitable and not very popular

Defining Profitability Item Contribution Margin

The amount that remains after product cost of the item is subtracted from the selling price

It is the amount available to cover labor cost, fixed costs and provide a profit

Selling Price - Product Cost Item Contribution Margin

Defining Profitability Total Contribution Margin

Determined by subtracting total product cost from total sales

Total Sales- Total Product Cost Total Contribution Margin

Defining Profitability Average Contribution Margin

Determined by dividing total contribution margin by the total number of items sold
Total Contribution Margin Average Contribution Margin Number of Items Sold

Defining Popularity

Relative quantity of items sold in relation to all items in that category

Sales mix

Number of Individual Items Sold Menu Mix % Total Number of Items Sold

Defining Popularity (continued)

Determined by dividing 100% by the total number of items

Multiplying that number by 70%

Assumes item is popular if its unit sales are 70% of what is expected (can be adjusted)

100 % Popularity Index 70% Total Number of Items

Menu AnalysisMenu Worksheet Analysis Worksheet

Number Sold 1188 804 1029 473 616 1099 758 738 872 349 1642 9568

Menu Mix Selling Price 12.4% 8.4% 10.8% 4.9% 6.4% 11.5% 7.9% 7.7% 9.1% 3.6% 17.2% 100.0% $15.95 $15.95 $14.50 $13.95 $14.50 $14.95 $12.95 $14.95 $16.95 $14.95 $15.50

Item Cost $4.33 $3.29 $4.30 $3.24 $4.29 $4.05 $4.24 $3.84 $4.31 $3.50 $3.50

Item Contribution Margin $11.62 $12.66 $10.20 $10.71 $10.21 $10.90 $8.71 $11.11 $12.64 $11.45 $12.00

Total Contribution Margin $13,804.56 $10,178.64 $10,495.80 $5,065.83 $6,289.36 $11,979.10 $6,602.18 $8,199.18 $11,022.08 $3,996.05 $19,704.00 $107,336.78

Rating
STAR STAR PLOWHORSE DOG PLOWHORSE PLOWHORSE PLOWHORSE PLOWHORSE STAR PUZZLE STAR

Total

Average Contribution Margin Popularity Index 6.4% $11.22

Classifications Contribution Margin

Using the worksheet the menu items are classified into four categories

High contribution margin, Low popularity (Puzzles) High contribution margin, High popularity (Stars) Low contribution margin, Low popularity (Dogs) Low contribution margin, High popularity (Plowhorses)

Managing Items
Characteristics High contribution margin, Low popularity High contribution margin, High popularity Low contribution margin, Low popularity Problem Marginal due to lack of sales. None Marketing Strategy
Relocate on menu for greater visibility Consider reducing the selling price Promote well Increase prominence on the menu Remove from the menu Consider offering as a special occasionally, but at a higher menu price Increase price Reduce prominence on the menu Consider reducing portion size

Category

Puzzles Stars Dogs

Marginal due to both low contribution margin and lack of sales. Marginal due to low contribution margin.

Low contribution margin, High popularity

Plowhorses

Criticism

A criticism of the contribution margin approach is that it tends to favor high priced items over low priced items

High priced items tend to have the highest contribution margins Over the long run contribution margin method results in decisions tend to put in the guest mind a higher check average than may be warranted

Another problem is an over reliance on the use of averages to separate the high selling from the low selling items

Goal Value Analysis

First proposed in 1985 by Drs. David Hayes and Lynn Huffman Uses the power of an algebraic formula to replace the less sophisticated menu average techniques

Evaluates each menu item on food cost %, contribution margin and popularity and adds into the analysis the items non-food variable cost and its menu price

For simplicities sake the non-food variable cost assigned to each item will be the overall variable cost for the operation

Formula

The goal analysis formula is

A x B x C x D Goal Value where A 1.00 - Food Cost % B Item Popularity C S ellingPrice D 1.00 - (Variable Cost% Food Cost %)

Goal Value Worksheet

Menu Item Steak Chicken Pork Lamb Fish Pasta

Number Sold 123 146 80 112 185 152

Selling Price Total Sales $21.95 $13.95 $15.95 $14.95 $19.95 $12.95 $2,699.85 $2,036.70 $1,276.00 $1,674.40 $3,690.75 $1,968.40

Item Cost $8.08 $6.09 $7.21 $6.91 $5.35 $4.26

Total Cost $993.84 $889.14 $576.80 $773.92 $989.75 $647.52

Total Weighted Average

798

$13,346.10

$4,870.97

$8,475.13

25.0%

133

$16.72

$2,224.35

$6.10

$811.83

$10.62

$1,412.52

36.5%

Overall Goal Value

Using the information from the worksheet you first determine an overall goal value
(1.00 - .365) x 133 x $16.72 x1.00 - (.25 .365) 543.65

Item Goal Value

The variables for each item are then put in the formula to determine a goal value for each individual item
Rank Menu Item 1 2 3 4 5 6 Fish Steak Pasta Overall Menu Chicken Lamb Pork A 1.00 - .268 1.00 - .368 1.00 - .329 1.00 - .365 1.00 - .437 1.00 - .462 1.00 - .452 B 185 123 152 798 146 112 80 C 19.95 21.95 12.95 16.72 13.95 14.95 15.95 D 1 (.25 + .268) 1 (.25 + .368) 1 (.25 + .329) 1 (.25 + .365) 1 (.25 + .437) 1 (.25 + .462) 1 (.25 + .452) Goal Value 1302.2 651.8 556.0 543.6 358.9 259.4 208.4

Goal Value Analysis

Items that do not achieve the targeted goal value tend to be deficient in one or more of the key areas of food cost percentage, popularity, selling price or variable cost percentage All menu items have the potential of reaching the goal value

Modifications

Goal value analysis can be modified for more accuracy

This involves assigning a low, medium or high variable cost to each item depending on managements belief of the true variable cost for each item The 25% may be assigned to those with average labor costs with 20% assigned to items with low labor costs and 30% to those with high labor cost

Goal value analysis is not dependant on past performance and can be used to establish future menu targets