Many businesses attempt to improve profitability by focusing too much on cost-cutting. Over time this strategy is a race to the bottom in time, impacting the guest experience. One way to improve your returns without impacting the customer experience or placing your staff under undue pressure is to spend more time working on your menu engineering.
Menu engineering is organising and presenting your menus in line with popularity and profitability to increase overall returns.
Understand your food cost
Your food cost is the cost of the ingredients less the sales price. Food cost is typically expressed as a percentage of the sales cost. To know this, you must have clarity about your food recipes and the cost of goods. Ensure a detailed recipe supports all your menu items.
Know the difference between Contribution Margin and Percentage Margins
A good restaurateur seeks to balance selling goods with a low food cost and interests with a high contribution value. For example, a $10 Hotdog may cost 20%, resulting in an $8 gross profit. However, a bottle of $100 Champagne may have a higher cost of 50%, resulting in a gross profit of $50.00. Remember, you cant bank percentages!
Record and review your sales performance
Nearly all point-of-sales systems used in restaurants and bars will provide a sales summary, and some systems will even allow the cost of a good to be recorded for each product. Operators must ensure that they have plans to report on the sales performance of all menu items, preferably at the end of each month.
Rate your menu items
By combining the cost of goods, sales prices and sales performance, you can rate your menu items into the following categories.
Plough horses: Low Profit and Popular. These items are essential to your business and tell you much about your market position and customer preferences. Keep the menu items and expand profitability with new recipes or enhance with specialty ingredients. Avoid upselling or promoting.
Dogs: Low Profit and Not Popular. Unless there is a reason to keep these menu items, e.g. children’s meals, these items should be removed. Do not upsell or promote.
Stars: High Profit and Popular. Avoid changing these dishes too much. They show be upsold and promoted. They are the stars of the show!
Wild Cards: High Profit and Not Popular. These dishes typically represent high contribution margins by specialty ingredients or preparation techniques. While not popular, they should be promoted and upsold.
Curate your menu
Now that you have reviewed your menu items and categorised them, you should like to organise your menu presented in a way that highlights your “Stars” and “Wild Cards”. You can use a range of visual tools to draw the eye to these dishes on the menu. In addition, you can use “house specialities” or “daily specials” to highlight these dishes.
If you want to increase your profitability, reach out to the Alto team for support.