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
Menu Item
Rigatoni Country Style Chicken and Mushroom Risotto Tortellini Rosa Gnocchi Mushroom Ravioli Lasagna Ravioli Pomodoro Fettucine Alfredo alla Luciano Cavitappi Al Forno Alla Bolognese Radiatorre Arribiata Con Funghi Cavitappi Toscana
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 Analysis Worksheet - Goal Value Analysis Item Total Food Contribution Contribution Cost Variable Margin Margin Percent Cost % $13.87 $7.86 $8.74 $8.04 $14.60 $8.69 $1,706.01 $1,147.56 $699.20 $900.48 $2,701.00 $1,320.88 36.8% 43.7% 45.2% 46.2% 26.8% 32.9% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
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
