Topic Three: Menu Engineering & Analysis

MENU ENGINEERING

The menu analysis technique described in the following pages was developed by Michael L. Kasavana

and Donald I. Smith and was described in a book published in 1982. Known as menu engineering, the

technique is now widely known and respected and has been the subject of numerous papers and

articles. Although some do not agree entirely with the conclusions drawn by Kasavana and Smith, their

approach to menu analysis is still timely, and is both interesting and revealing.

Figure 11.1

Menu engineering can best be explained by example. A Menu Engineering Worksheet showing sales

of entrée items of the Grandview Bistro for the month of February is illustrated in Figure 11.1 .

Initially, one notes many similarities to the Menu Pre - Cost and Abstract form illustrated and

discussed in previous article. Column headings such as “ Menu Item Name, ” “ Number Sold, ” “

Food Cost, ” “ Sales Price, ” “ Menu Cost, ” and “ Menu Revenues ” give one a sense of familiarity.

Although the terms differ slightly, these are much the same as those used on the Menu Pre - Cost

and Abstract form. Specifically, the Menu Engineering Worksheet closely corresponds to the right,

or abstract, side of the form in previous article. The sources of the data and the required

computations are exactly the same.

There are several additional columns that distinguish the Menu Engineering Worksheet: (C) “ Menu

Mix %”; (F) “ Item CM ”; (L) “ Menu CM ”; (P) “ CM Category ” ; (R) “ MM Category ” ; and (S) “ Menu

Item Classification. ” At the bottom of the worksheet, there are several additional computations.

Both the additional columns and the computations require some explanation.

Column C: Menu Mix Percent

The menu mix percent is the same as the popularity index, which was calculated in previous articles.

The percentage for each item is calculated by dividing the number of units sold by the total number

of units sold for all items. For example, 252 portions of Strip Steak we re sold, and a total portion sale

for all items was 2,635. The menu mix percent for this item is calculated as 9.564 percent. In

addition, 207 portions of Chicken Albufera were sold, and the menu mix percentage was calculated

at 7.856 percent. The menu mix percent for each of the other items is calculated the same way.

Question

Sales records for a luncheon in the Zalika’s Restaurant for a recent week were: Given this

information, calculate the sales mix.

Item A, 196

Item B, 72

Item C, 142

Item D, 24

Item E, 112

Item F, 224

Item G, 162

Column F: Item CM

The student will recall from discussion in previous articles that contribution margin (CM) is defined

as sales price minus variable cost per unit. It is another phrase for gross profit, previously calculated

for Strip Steak and Chicken Albufera. Thus, the CM for Strip Steak and all other menu items is

determined by subtracting the portion cost for the item from its sales price, as previously illustrated.

For Strip Steak:

Sales price $23.65 – Food cost $ 7.50=CM $16.15

The CM is the amount available from each sale to contribute toward meeting all other costs of

operation, and, when those costs have been met, to provide profit for the owner.

Column G: Menu Cost

The menu cost for the item is simply the number sold, as shown in column B, times the individual

cost, as shown in Column D. It is the same as the “Total Cost” column in the Menu Pre - Cost and

Abstract form.

252 portions of Strip Steak sold x $7.50 = $1,890 menu cost

Column H: Menu Revenues

Similarly, menu revenue for an item is the number sold, as shown in column B, times the sales price

of the item, as shown in Column E.

252 units sold x $23.65 = $5,959.80 menu revenues

Column L: Menu CM

The menu contribution margin is found by multiplying the number of units sold for each menu item

by its contribution margin. Thus, for Strip Steak, 252 units sold x $16.15 CM = $4,069.80 menu CM

This calculation shows the total of contribution margins provided by the particular menu item. The

sum of all the individual totals is found in Box M. For the Grandview Bistro, the total contribution

margins for all items for the month of February are shown as $36,056.75. This amount of money is

available to be applied to all other costs in the restaurant and to provide a profit. It is important to

note that the amount shown in Box M is the contribution margins for entrées only and does not

include other sales such as appetizers, desserts, and beverages. There would be a larger total menu

contribution if one were to include sales of other items. The Menu Engineering worksheet shown in

Figure 11.1 includes only entrées, because the analysis would be skewed and invalid if sales of all

menu items were included in one worksheet.

Column P: CM Category

The entries in this column, L for low and H for high, are made after comparing the contribution

margin for each menu item (Column F) with the average contribution margin for the menu (Box O).

If the contribution margin for a given menu item is lower than the average contribution margin, the

entry for that item in Column P is L for low. If the contribution margin is higher than average, the

entry is H for high. For example, the contribution margin for Strip Steak is $16.15, which is higher

than the average contribution margin for the menu, $13.68. Thus, the entry for that item in Column

P is an H for high. Chicken Albufera has a CM of $11.25, which is lower than the average

contribution margin of $13.68, and the entry in Column P for that item is L for low .

Column R: MM Category

The entries in Column R (L and H for low and high) are determined by comparingthe menu mix

percentage for each item in Column C with the figure in Box Q. For example, the menu mix

percentage for Strip Steak is 9.564 percent.

Compared with the 4.375 percent figure in Box Q, this is high, so the entry for Strip Steak is the

letter H. The menu mix percentage for Chicken Albufera is 7.856 percent, also higher than the 4.375

percent in Box Q. However, Roasted Duck Breast represents only 3.871 percent and is lowe r than

the 4.375 percent in Box Q, so it receives an L. Because all entries in Column P and Column R must

be one of two letters (either H or L), there are four possible combinations of letters: H/H, L/L, H/L,

and L/H. These four possible combinations are used to identify menu items. In the special language

of menu engineering, each has been given a name:

• H/H is a star. A star is a menu item that produces both high contribution margin and high volume.

These are the items that foodservice operators prefer to sell when they can.

• L/L is a dog. A dog is a menu item that produces a comparatively low contribution margin and

accounts for relatively low volume. These are probably the least desirable items to have on a menu.

• L/H is a plow horse. A plow horse is a menu item that produces a low contribution margin, but

accounts for relatively high volume. These are items that have broad appeal to customers, but

contribute comparatively little profit per unit sold.

• H/L is a puzzle. A puzzle is a menu item that produces a high contribution margin but accounts for

comparatively low sales volume.

Because it provides a demonstration of the extent to which each menu item contributes to

profitability, the Menu Engineering Worksheet can be of great use to restaurateurs wh o are

interested in maximizing profit.

MENU ANALYSIS

Description of Stars, Plow horses, Puzzles, and Dogs

Having completed the worksheet, a restaurateur can use the general guidelines offered in the

following paragraphs to analyze the list of menu offerings and then determine the changes, if any,

that would improve the menu.

Stars

Stars are both profitable and popular and should normally be left alone, unless there is a valid

reason for change. Because of the popularity of stars, it is sometimes possible to increase their

menu prices without affecting volume, thus increasing their profitability.

Plow horses

Plow horses are popular, but relatively unprofitable. They should be kept on the menu, but attempts

should be made to increase their contribution margins without decreasing volume. A possibility is to

decrease standard portion size slightly while improving the appearance of the product. Another is to

raise prices on such items, assuming that the volume of those items will not be adversely affected to

any great extent.

Puzzles

Puzzles are comparatively profitable, but relatively unpopular. They should be kept on the menu,

but attempts should be made to increase their popularity without decreasing their profitability

substantially. There are any numbers of ways to do this, including repositioning items to more

favorable locations on the menu, featuring items as specials suggested to diners by servers, and

changing the appearances or menu descriptions of these items to increase their appeal.

Dogs

Because dogs are both unprofitable and unpopular, they should be removed from the menu and

replaced with more profitable items unless (1) there is a valid reason for continuing to sell a dog (as

with an item that promotes other sales) or (2) its profitability can somehow be increased to an

acceptable level.

This will require that the item be changed in some way. One way of changing an item from a dog to

a puzzle is to increase contribution margin per unit, which may be done by increasing sales price.

The Menu Engineering Worksheet in Figure 11.1 shows the following:

Stars: Strip Steak, Tournedos Rossini, and Steak Diane.

Plow horses: Ginger Shrimp, Tea - Smoked Salmon, Pan - Seared Chicken, Chicken Albufera,

Trout Grenobloise, Shrimp a la Marseille, Fruits de Mer, and Catch of the Day.

Puzzles : Roasted Duck Breast, Parmesan Veal Steak, Loin of Pork, and Lamb Chops

Dogs : Vegetarian Burrito

However, all stars, plow horses, puzzles, and dogs are not the same. Some stars are truly

outstanding, with very high volume and very high contribution margins. Examples of this are Strip

Steak and Tournedos Rossini. Tea - Smoked Salmon, on the other hand, has very high volume, but its

contribution margin is $13.45, very close to the average of $13.68. If its price were raised $0.25, it

would be in the star category. Duck Breast, by contrast, is classified as a puzzle, yet its contribution

margin is $14.10. If its price were just $0.42 lower, it would be in the dog category.

Graphic Representation of Stars, Plow horses, Puzzles, and Dogs

It is possible to better visualize the differences in the items by plotting them on a chart, as we have

done in Figure 11.2. The numbers sold are shown on the vertical line at the left of the chart, and the

contribution margins are shown on the horizontal line at the bottom of the chart. The horizontal line

going across the chart at the 115 number, which is 70 percent of the average MM, represents 4.375

percent, the cutoff point that determines whether an item is classified as high or low for volume. A ll

items shown above the 4.375 percent line are classified as high, and all items shown below the

4.375 percent line are classified as low. The vertical line in the center of the chart represents the

cutoff point that determines whether an item is classified as high or low for contribution margin.

All items shown to the left of the line are classified as low, and all items to the right of the line are

classified as high. We have placed each item in its approximate position on the chart so that a visual

picture of all items can be shown.

Figure 11.2

Thus one can see that some items — Loin of Pork, Vegetarian Burrito, Veal Steak, Lamb Chops, Duck

Breast, Shrimp à la Marseille, Fruits de Mer, Ginger Shrimp, and Salmon — are very close to

becoming classified in another category.

Using the Categories to Alter Menus

Having completed the Menu Engineering Worksheet and the Graphic Representation of Stars,

Puzzles, Plow horses, and Dogs, it is now possible to analyze the menu and make changes that will

improve contribution margins.

Restaurant : Period:

A B C D E F G H L P R S

Menu Item

Name# Sold

Menu

Mix %

Food

Cost

Sales

Price

Item CM

(E-D)

Menu

Cost

(D*B)

Menu

Revenues

(E*B)

Menu CM

(F*B)

CM

Catergory

MM

Catergory

Menu Item

Classification

Fried Chicken 175 $3.00 $7.00

Sirloin Steak 190 $5.50 $13.00

Baked Ham 40 $4.00 $8.00

Stuffed Sole 45 $7.00 $13.00

Swordfish 80 $8.00 $15.00

Lobster 60 $7.50 $16.00

Veal Marsala 90 $5.50 $14.00

Roast Rib 145 $6.00 $13.00

Lamb Chops 125 $6.00 $9.00

Beef Burgundy 50 $3.50 $7.00

Column N I J M

Totals $ $ $

K=I/J O=M/N

Menu Engineering Worksheet

Izati"s café 23rd December 2014

Q=(1/no.of item X 70%)

Exercise

1. George’s Restaurant had the following menu sales during a period of one week:

a. Calculate the menu mix percentage for each menu item.

b. Calculate menu contribution margin for the week.

c. Calculate menu food cost percentage for the week.

Menu Item Sales Food Cost Menu Price

Strip Steak 73 $6.50 $18.90 Fried Chicken 90 $3.90 $12.75

Lamb Chops 55 $7.00 $20.35 Fried Scallops 92 $5.90 $18.50

Broiled Haddock 85 $4.50 $15.65 Roast Turkey 92 $3.00 $12.00

Baked Stuffed Shrimp 77 $6.70 $18.50 Veal Marsala 65 $6.50 $18.75

2. Generate Menu Engineering and analysis

a. Complete the Menu Engineering Worksheet reproduced in Figure 11.3, filling in the missing information. b. Prepare a graph similar to Figure 11.2 showing stars, plow horses, puzzles, and dogs.

Figure 11.3