Data-Driven Menu Design: How to Apply Menu Engineering for Increased Profitability
Menu engineering is a process of using data analysis to optimize the performance of items on a restaurant or food and beverage (F&B) business's menu. The goal of menu engineering is to identify which items are driving sales and profitability, and which items may be underperforming.
How to engineer your menu and maximize profits?
To apply menu engineering to an F&B business, the business owner should first gather data on the sales and profitability of each menu item. This data can be collected through point-of-sale systems or by manually tracking sales.
Here's an example of how a small restaurant owner might use menu engineering to optimize their menu:
- Collect data: The owner gathers data on the sales and profitability of each menu item for a period of time, for example, a month.
- Analyze data: The owner uses the data to calculate the "contribution margin" for each menu item. This is done by subtracting the cost of goods sold (COGS) from the menu price for each item. For example, if an item is sold for $10 and the COGS is $5, the contribution margin for that item is $5.
- Identify "stars" and "dogs": The owner then separates the items into two groups:
- "stars": items that have a high contribution margin and are also high in sales volume.
- "dogs": items that have a low contribution margin and low sales volume.
4. Take action:
- The owner can then promote "stars" items through specials, signage and menu placement in order to drive more sales.
- The owner can re-price "dogs" items to increase profitability or remove them from the menu if they are not profitable.
- Use the data to identify trends and customer preferences, and use that information to create new menu items that will appeal to customers.
- Review portion sizes and costs of each menu item to ensure cost-effective pricing.
- Lastly, review the menu presentation and layout to make sure it is visually appealing and easy to navigate.
By identifying "stars" and "dogs" and taking action to optimize the menu, the owner can increase profitability and drive growth for the business. It's important to note that this process should be repeated regularly to ensure that the menu stays optimized as customer preferences change over time.
In addition to "stars" and "dogs," there are a few other labels that are commonly used in menu engineering to describe different types of menu items:
- "Plowhorses" These are items that have moderate sales and moderate profitability. They are dependable and consistent, but may not be as exciting as "stars."
- "Puzzles" These are items that have low sales but high profitability. They may be unique or specialty items that only appeal to a small group of customers.
- "Promising items" - These are new items that have recently been added to the menu and have potential to become "stars" in the future.
To optimize these other labels of menu items,
- For "plowhorses", the owner can focus on promoting them more, by highlighting them in menu specials or by adding them to the menu's recommended items.
- For "puzzles" the owner can consider if the item is worth keeping on the menu, if the customer base is small and the item is not contributing much to the overall profit of the business, it's better to remove it.
- For "promising items", the owner should monitor their performance and make adjustments as needed to help them become "stars" in the future.
It's important to note that menu engineering is an ongoing process, and the labels and actions that are appropriate will depend on the specific goals and circumstances of the business. The key is to use data analysis to identify which items are driving sales and profitability, and then take action to optimize the menu accordingly.