What Is Menu Engineering?
Menu Engineering is a mathematical model for analyzing the relative sales/profit earning potential of the individual items on a menu and helps you focus on actual profit returned from a menu, rather than the usual focus on the percentage cost of menu items.[nz_gap height=”10″ /]
The key word in menu engineering is ‘relative‘. Menu engineering compares each menu item against it’s peers on the menu. In fact, for menu engineering to work properly, you need to compare like products against like products. That is, desserts should be compared against other desserts and main courses should only be compared against main courses, etc.
Menu engineering calculations determine the relative popularity for each item (called the Menu Mix, or MM for short) and the relative profit return for each item (called the Contribution Margin, or CM for short). The MMs and CMs for each menu item are then compared to each other to determine an overall ranking for each item on the menu. These rankings are one of four following standard rankings based on that item’s sales performance/price combination:
1. Star. Menu Mix Rank: High, Contribution Margin Rank: High. These items are literally your ’star’ performers. They sell well (MM Rank = High), and they return a good profit (CM Rank = High). Menu items with this ranking should not be tampered with too much. A ‘Star’ ranking for a menu item indicates that you have hit the ’sweet spot’ between popularity and price for that particular item. Any price increases might meet buyer resistance and lower the total unit sales, reducing the MM Rank.
2. Puzzle. Menu Mix Rank: Low, Contribution Margin Rank: High. These menu items don’t sell in particularly large quantities (MM Rank = low), but they do make a relatively high profit (CM Rank = High). It may, in some cases, be feasible to promote these items up to a ‘Star’ ranking by adjusting their prices downwards slightly. This price reduction could lead to more unit sales and hence bump the MM Rank up to ‘High’ without losing the high CM ranking. You will need to use your experience and intuition when experimenting with these prices.
3. Plough Horse. Menu Mix Rank: High, Contribution Margin Rank: Low. These menu items are your steady sellers (MM Rank = High), but unfortunately, you won’t make your fortune from them (CM Rank = Low). Minor price increases for these items may improve their profitability and Contribution Margin ranking, but this may also have the effect of reducing their total sales and reducing the MM Rank. These items are worth experimenting with price and/or portion size in an attempt to improve their profitability, but preferably not at the expense of their popularity.
4. Dog. Menu Mix Rank: Low, Contribution Margin Rank: Low. These menu items are particularly poor performers. They don’t sell well (MM Rank = Low), and they don’t make much profit relative to their peers (CM Rank = Low). Any menu items with this ranking should be considered for deletion from the menu. You may find that increasing the price of one of these items might push it up one ranking by increasing it’s CM Rank, but unfortunately, this will tend to make the item’s sales quantity, and hence, its Menu Mix even worse.
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I’ve spent the best part of 33+ years building successful hospitality businesses. But I’m never surprised at the failure rates for our industries: 24% of you will go out of business in your first year – 76% by year three.
Why? It all boils down to this: The operator did not know what he didn’t know. And it killed his business.
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