Engineering Profitable Menus

By Michael L. Kasavana, Ph.D

The MENENG model What is the most profitable price to

assign a menu item? At what price level and mix of sales does a foodservice operation maximize its profits? Which current menu items require re-pricing, retention, replacement or repositioning on the menu? How should daily specials and new items be priced? How can the success of a menu change be evaluated? Lodging operators and restaurant managers can find the answers to these questions through the application of the software package MENENG.

Users can enter date for analysis manually into the program’s database, automatically from an integrated software module, or electronically via an external system interface. A stand-alone, off-the-shelf version of MENENG requires that the foodservice operator be familiar with each menu item’s product cost, selling price and number sold. This input is sufficient to generate a complete menu engineering analysis. Because restaurateurs may employ recipe costing packages to provide accurate product cost data, MENENG can be configured to read this data from a file, rather than processing user input. Similarly, the MENENG software system can process selling price and number sold data which was previously captured in a point-of-sale system and then transmitted to the MENENG package.

What is MENENG? MENENG is the name of an automated version of menu engineering developed by Don Smith and myself. (Both Kasavana and Smith are professors at Michigan State University’s School of Hotel, Restaurant and Institutional Management.) MENENG foodservice software enables management to evaluate current and future menu pricing, design, and content decisions through a specialized technique. Attention is focused on: customer demand (number of covers sold), menu mix (Preference scoring), and contribution margin (gross profit). The model provides both a micro (menu item) and macro (overall activity) level analysis for competing menu items by meal periods.

The menu-engineering concept requires that management orient itself to the number of dollars a menu contributes to profitability, not to merely monitoring cost percentages. Rather than asking “What is a satisfactory food cost percentage?” MENENG asks “Is the restaurant receiving a reasonable contribution to profit from its menu mix?” (A food cost percentage is determined by dividing food cost by food sales.)

The MENENG analysis After entering data and selecting an analysis option, the user can watch the MENENG package begin its work. As the analysis progresses, a menu item’s contribution margin and sales activity is categorized as relatively high or low.

Eventually each item will be further classified for both its marketing and pricing success. These classifications, resulting from a series of internal mathematical and logical procedures, will help identify proper decision strategies. The MENENG output is composed of five reports detailed below:

Menu item analysis. Figure One. The initial report in the MENENG analysis is an item by item listing of menu selections accompanied by selling price, portion cost, contribution margin and item count (number sold). The primary reason for this report is to allow the user to verify the data to be analyzed in this computer run.

Menu mix analysis. Figure Two. The menu mix analysis report is an interactive evaluation of each item’s participation in the overall menu’s performance. The percentage of menu mix, marked %MM on the Figure Two chart, is developed based upon each item’s count divided by the total number of covers sold. Each percentage is then ranked as high or low, depending upon its comparison with the MENENG algorithm for menu mix sufficiency. The percentage each item has contributed to the menu’s total

Figure One Menu Item Analysis

Item Description Item Portion Contr.Price Cost Margin

FRIED SHRIMP 7.95 4.85 3.10 210FRIED CHICKEN 4.95 2.21 2.74 420CHOPPED SIRLOIN 4.50 1.95 2.55 90PRIME RIB 7.95 4.95 3.00 600KING PRIME RIB 9.95 5.65 4.30 60NY STRIP STEAK 8.51 4.50 4.00 360TOP SIRLOIN 7.95 4.30 3.65 510RED SNAPPER 6.95 3.95 3.00 240LOBSTER TAIL 8.50 4.95 4.55 150TENDERLOIN TIPS 6.45 4.00 2.45 360

Menu: Dinner

ItemCount

Figure Two. Menu Mix AnalysisGroup Group Menu

Item Description Rank Rank ClassFRIED SHRIMP 210 7.00 HIGH 6.73 3.10 LOW PLOW HORSEFRIED CHICKEN 420 14.00 HIGH 11.89 2.74 LOW PLOW HORSESHOPPED SIRLOIN 90 3.00 LOW 2.37 3.55 LOW <<DOG>>PRIME RIB 600 20.00 HIGH 18.60 3.00 LOW PLOW HORSEKING PRIME RIB 60 2.00 LOW 2.67 4.30 HIGH ?PUZZLE?NY STRIP STEAK 360 12.00 HIGH 14.88 4.00 HIGH **STAR**TOP SIRLOIN 510 17.00 HIGH 19.24 3.65 HIGH **STAR**RED SNAPPER 240 8.00 HIGH 7.44 3.00 LOW PLOW HORSELOBSTER TAIL 150 5.00 LOW 7.05 4.55 HIGH ?PUZZLE?TENDERLOIN TIPS 360 12.00 HIGH 9.12 2.45 LOW PLOW HORSE

PozzleDog

* Note: These classification titles are not unique to Menu Engineering

LowLow

CM RankHighLowHighLow

Menu ClassificationsMM Rank

HighHigh

ClassificationStar

Plow horse

%CMShare

Contr.Margin

MMCount

%MMShare

contribution margin can be found in the column labeled %CM share. Each item’s contribution margin is then ranked according to how it compares with the menu’s weighted average contribution margin (ACM). A menu class for each item is determined by considering its Menu Mix group rank and Contribution Margin group rank together.

Total Average LowPRICE 22050.00 7.35 4.5 9.95FOOD COST 12374.70 4.12 1.95 5.65CONTRIBUTION MARGIN 9675.30 3.23 2.45 4.55DEMAND FACTOR 3000.00 300 60 600

FOOD COST PERCENTAGE 56.12%NUMBER OF ITEMS 10

HighFigure Three. Menu Engineering Summary

The four menu classifications used in MENENG analysis are determined according to the table marked Menu Classifications, located below Figure Two.

PLOW HORSE **STAR**Fried Shrimp NY Strip SteakFried Chicken Top Sirloin

Prime RibRed Snapper

Tenderloin Tips

<<DOG>> ?PUZZLE?Chopped Sirloin King Prime Rib

Lobster Tail

Figure Four. 4 Box AnalysisMenu engineering summary. Figure Three. Perhaps the most informative report in the MENENG package is the menu-engineering summary. Important information is presented in capsule form, providing a concise statement of operations.

The row labeled price is read as total menu revenues, average item selling price, lowest selling price and highest selling price, respectively. The food cost row contains total menu costs, average item food cost, lowest cost item and highest cost item. The contribution margin row depicts total menu CM, average item CM, lowest item CM, and highest item CM. The demand factor row details total number of covers, average number of covers, lowest item count and highest item count.

Much of the information in the body of this report is used elsewhere in the overall menu-engineering scheme. The lowest and highest selling prices on the

menu, for example, are termed price points and can be used to help identify target market success.

Four-box analysis. Figure Four. This report is presented as an easy-to-index summation of the menu classifications developed in the menu mix analysis report. Since menu engineering leads to a series of decision strategies specific to each menu glass, this report provides the

user with insight relative to the number of items found in each category. Figure Four, for example, displays a menu composed of five plow horses, two stars, two puzzles and one dog. Are five too many plow horses? This type of evaluation begins with this matrix and carried through the menu-engineering graph.

Menu engineering graph. Figure Five. Because it clearly depicts each competing menu item’s relative position to all others, the menu-engineering graph is considered the most powerful report produced by MENENG. The graph charts menu mix on its vertical axis and contribution margin on its horizontal axis. Each item is then graphed according to its CM and MM coordinates.

600 — 4

550 — Number Item Name1 Fried Chrimp

500 — 7 2 Fried Chicken3 Chopped Sirloin

450 — 4 Prime Rib2 5 King Prime Rib

400 — 6 NY Strip Steak7 Top Sirloin

350 — 10 6 8 Red Snapper9 Lobster Tail

300 — 10 Tenderloin Tips

250 —8

200 — 1

150 — 9

100 —3

50 — 5

0 | | | | | | 1.00 2.00 3.00 4.00 5.00 6.00

Figure Five. Menu Engineering Graph

70% MM

Average CM

Because all items in the same classification do not possess identical characteristics, a different menu engineering strategy may be appropriate for similarly categorized items. Prime rib, for example, presents a different profile than fried shrimp. An operator typically is more willing to raise the price of prime rib, expecting to sell less, than fried shrimp. The dynamics of the MENENG analysis becomes concerned with trade offs based upon elasticities of price and demand.

MENENG software requires that the user provide a minimal amount of data. All computations, sortings and rankings are performed automatically under the direction of the computer program. The speed, accuracy, and retention capabilities of a computer renders MENENG a powerful tool for foodservice management.

Dr. Kasavana received his B.S., M.B.A., and Ph.D degrees from the University of Massachusetts. He has taught at both the undergraduate and graduate levels at the University of Massachusetts and Michigan State University.

Dr. Kasavana is the author of several books including Hotel Information Systems, Effective Front Office Operations and Computer Systems for Foodservice Operations. He co-authored Menu Engineering with Don Smith.