Menu Planning,

Menu Pricing &

Menu Engineering
Food & Beverage
Management
III Yr.
Bhavin Parekh

F&B Management - III Yr. - Bhavin

07/11/10 Parekh 1
 AREAS of FOCUS
♦ Menu Planning
♦ Menu Costing & Pricing
a) Different types of Pricing
b) Why are they used
c) Pricing Types with their examples
♦ Menu Evaluation
a) Defining Popularity
b) Defining Profitability

F&B Management - III Yr. - Bhavin

07/11/10 Parekh 2
AREAS of FOCUS
Cont’d…
a) Evaluating the Menu
b) Improving the Menu
♦ Menu Engineering and Analysis using Computer
Based Systems
a) MEA
b) Menu Item Analysis
c) Menu Mix Analysis
d) Four Box Analysis
e) Menu Engineering Graph

F&B Management - III Yr. - Bhavin

07/11/10 Parekh 3
MENU AS FOUNDATION FOR
CONTROL
• The Menu is the Foundation
for the Control Process in a
Food & Beverage Operation.

• As the foundation, Menu

Planning Control Point beings
the Control Process.
 A) The Menu: As a Foundation
of Control Points
• Control Points are basic operating activities
that must be performed in any Food &
Beverage Operation.

• There are 9 Main Control Points.

• The Flow Chart of Basic Operation Activities

uses Boxes to denote each Control Point.

• Arrows between the boxes are used to

indicate the flow of Products / Materials.
FLOW CHART OF CONTROL POINTS

Storing Issuing

Productio
n
Receiving Activities
Preparing

Guest Satisfaction
Purchasing Cooking

Holding Serving
Menu Planning
F&B Operation as Control
Points
• When we view the F&B Operation
as a System of Control Points:
– Control Activities associated with each
function are easier to identify and carry out.

– Accountability for Control Activities

improves.

– It becomes possible to make Short Term

and Long Term Planning for Control to
keep “CRISIS” situations at bay.
B) Influence of “THE MENU”

• The Process of Planning a Menu never

ends. The Final Menu is never
achieved.
• Menu Planning is:
– Ongoing Process
– Dynamic Process
– Expectations of the Guests (Present /
Potential).
 THE MENU
• A properly planned menu stimulates
Revenue and increases the Guest
Check Average.

• Whenever the Menu is Presented to

a Guest a SALES TRANSACTION
begins.
Influence of “THE MENU” on
F&B Operations
• Product Control Procedures:

– The F&B Products must be controlled.

If the Operation needs Shrimp to
produce a Menu Item, Shrimp will have
to be Purchased / Received / Stored /
Issued / Prepared / Cooked and finally
Served.
 Influence of “THE MENU”

• Cost Control Procedures:

– Careful Cost Control Procedures must

be followed as more expensive
products are served. This is upon
Guest Demand of an operation,
providing a “Dining Experience” and
not just a “Meal”.
 Influence of “THE MENU”
• Production Requirements:

– Food Items required by the Menu must

be Produced “Consistently”.
– The following parameters are all
dictated by the Menu:
• Product Quality
• Staff Productivity
• Skills
• Timing and Scheduling
 Influence of “THE MENU”
• Nutritional Content of Meals:

– Food & Beverage Operations

(Commercial / Non – Commercial) are
increasing concerned about the
Nutritional Content of the Food served
to the Guests / Clients. Menu can have
an impact on the health and well being
of those to whom it is served.
 Influence of “THE MENU”
• Equipment Needs:

– All Equipment required to produce the

Menu must be available. The Menu
must be balanced such that no one
station in the Kitchen is Pressurized
or under – utilized.
 Influence of “THE MENU”
• Sanitation Management:

– Since the Menu sets the stage for the

remaining control points, the
Management must consider the Menu
Items in light of possible Sanitation
Hazards. Once potential Hazards are
identified, risks can be reduced.
 Influence of “THE MENU”
• Layout and Space Requirements:

– There must be adequate facilities for the Staff

and Equipment required to produce items
listed on the menu. The layout and design
facilities establish physical space within
which Food Production and Service take
place. Physical facilities must be adequate for
Purchasing / Receiving / Storage / Issuing /
Production and Serving of Menu Items.
 Influence of “THE MENU”
• Staffing Needs:

– Employees must be able to produce

and serve all the items required by the
menu. The more complex the menu, the
greater the demands placed on the
Production and Service Staff. Staffing
needs are influenced to a great extent
by the use of “Convenience Foods” by
the operation.
 Influence of “THE MENU”
• Service Requirements:

– F&B Manager must carefully plan how

products will be served to the guest.
The Menu influences your choice of
Service Style. It influences the Skill
Levels required by the Waiting Staff
along with Equipment & Inventory.
 Influence of “THE MENU”
• Revenue Control Procedures:

– A simple Fast Food Operation would not have

as much problems in Revenue Control as a
Specialty Restaurant.
– In a Fast Food Operation, there would be
fewer Menu Items (comparatively lesser
Product Range), hence controlling Revenue
from the sale of these would be far easier than
controlling Revenue in a Specialty Restaurant
wherein the Product Range is extensive,
involving a large Beverage List as well as a
wide choice of Food items.
 C) MENU PALNNING
• The Menu is not only a Control Tool.
Since it lists F&B Items that your
operation has to offer, it also doubles
up as a Marketing tool.

• In this manner the Menu doubles up

as a Control and Marketing Tool and
blends them into a workable system.
 Priority Concerns of the Menu Planner
Wants & Needs Guest
Concept of Value Quality of Item
Item Price Flavor
Cost
Object of Visit Visual Appeal
Availability
Socio - Economic Temperature
Peak Volume
Demographic Concerns Production /
Texture/Shape
Ethnic / Religious Concerns Op. Concerns
Sanitation Aroma

Layout Consistency

Equipment Nutrition
Marketing Implications of
Menu
• Because a Menu lists the items that a
F&B Operation is offering for sale, it in
turn becomes a Marketing Tool.
• When developing it’s Marketing Plans,
the operation needs to assess its’
Products and Services, the
ambience / décor and the perceived
value that its’ Target Markets expect.
Marketing Implications of
Menu
• When carrying out it’s Marketing
Plans, the F&B Operation must try to
meet or Exceed Customer
Expectation.
• In addition Menu Planners must study
the competition in the area. This helps
to decide what the Operation can do
to get the “EGDE” over the
competition, especially when the
same Market Segment is Targeted.
Theme and Atmosphere
• The complexity of Menu Planning depends
upon the ambience of F&B Operation.

• Many F&B Operations have a specific

theme and atmosphere. French / Italian /
Chinese are examples of Operations with
Ethnic Themes. Menu Planning greatly
depends upon this as the Menu must be
compatible with the Theme / Atmosphere of
the place.
 Menu Planning Strategies
• The Past: In the past, the Food
Service Operators tried to diversify
their menus by adding new menu
items. This increased the number and
variety of raw ingredients.
• This would in turn lead to problems in
Storage
• And increased Inventory Costs
(Cost of Ingredients + Carrying
Cost + Storage Costs + Opportunity
 Menu Planning Strategies
• Present: The Present – Rationalization Strategy:
– This strategy limits the menu of the Operation to only
those items that best enhance the Operation’s Image.

• The objective is simplification for the

purpose of Operational efficiency.

• Alternatively, an Operator can offer

several menu items using the same Raw
Ingredients.
 Menu Planning Strategies
• To start with, it is best to base your menu plans on
the Needs and Desires of your Targeted Market
Segment. (You identify a Need in the Market and
then try to fulfill the same with your Menus.)

• However, other factors to look at when designing a

Menu are:

a) Storage Conditions – (Time & Temperature)

b) Personnel Skill Levels
c) Product’s Availability / Seasonality
d) Quality and Price Levels
e) Ability to produce the Menu Item in Sanitary / Cost
Effective Way.
 Building the Menu

• Entrees are typically selected first in the

Menu Planning Process.

• It is not only important to look at the

types of Entrees but also their Costs,
Preparation Methods and Compatibility
with the Theme & Atmosphere.
 Building the Menu
• How many Entrees should a F&B Operation
have?
– Some F&B Operators feels that a wide
variety of Entrees should be provided.
This in turn causes a number of
problems which need careful planning to
resolve.
– Example: A number of Ingredients would
be required with differing SPS, if the
Outlet is offering a wide variety of
Entrees. Along with this you would have
a need for a wide variety of Production
Equipment and Highly Skilled Labor.
 Building the Menu
In Short:
CONTROL BECOMES MORE
COMPLEX WITH THE
INCREASING COMPLEXITY
OF YOUR MENU
 Building the Menu
• The reverse approach of making
available only a limited number of
Entrees reduces problems of Control to
a great extent and increases
Operational Efficiency (Production and
Service).

• After selecting Entrees, Menu Planners

must choose Items to complement the
Entrees.
 Building the Menu
• A common practice is to plan the
Appetizers or Soups followed by High
– Starch Items like Potato or
Vegetables if already not part of the
Entrée.

• This is followed by the accompanying

Breads, Salads, followed by Desserts
and Beverages.
 Dining Trends
• The “Grazing” Trend: It is a common trend
observed in the Baby Boomers whose lifestyles
reflect their desire for variety.

• Grazers are unlikely to select a full meal, but

rather choose appetizers, salads and desserts to
complete their menu selection. They like to build
their own menus.

• Grazers are more likely to choose smaller

portions of a number of menu items rather than
a large portion of an entrée. Hence, Modular
Cuisine suits them best.
 Dining Trends
• If a F&B Operation’s business is
Transient and the clientele changes
frequently – Menus may be Static.

• When Business is highly repetitive and

involves regular guests, there is a need
for a Dynamic Menu – Changing
Frequently (Weekly Basis). Daily
Specials can be added to make the
menu more varied offering a greater
choice to customers.
 Menu Design
• Design of a menu can influence:
i. Guests Purchasing Decision
ii. Stimulate Sales of Additional / Preferable
Menu Items
iii. Increase the Guest Check Average

• Readability / Artwork / Type Styles /

Physical Design and layout play an
important role in merchandizing.
 Menu Changes
• External Factors:
– Consumer Demands
– Economic Conditions
– Competition
– Supply Levels
– Industry Trends

• Internal Factors:
– Facility’s Meal Pattern
– Concept / Theme
– Operational System

– Menu Mix
 D) Menu Pricing
• After a menu is planned and costed, each
item has to be priced.
• There are various factors to take into
consideration such as the:
– Type of Operation
– The Market
– Costs
• The market is a major factor in the type of
pricing.
– Certainly most customers want only low prices; others seek
moderate ones; some will be willing to pay higher prices.
– The Key is to establish a fine balance between the Price and
Quality of Food offered by the Operation all other parameters
being the same.
 Calculating Menu Selling
Prices
• There are two main types of Pricing
Techniques.
– Subjective Pricing
Method
– Objective Pricing Method
 Subjective Pricing Methods
• Prices determine to a large extent
whether the financial goals of the
Operation are met, many managers
use very Subjective Pricing Methods.
• Subjective Pricing Methods establish
Prices, however, fail to relate them to
Profit Requirements and even Costs.
• This Pricing method is based merely on
assumptions.
 Subjective Pricing Methods

• The Reasonable Price Method:

– The method uses a price that the Operator
thinks will represent value to the guest.
– In other words, the Operator puts himself in the
guest’s shoes and asks “How much am I willing
to pay for this Item, considering the type of
setting?”
– The answer to this is the Reasonable Pricing
Method.
 Subjective Pricing Methods
• Highest Price Method:

– Using this Pricing Method, the Operator

sets the Highest Price for an Item that
he thinks the Guest is willing to pay.
– This is pushing the concept of Value to
the Maximum. A High Price is set then
“Backed Of” in order to provide for an
Error Margin in the estimate.
 Subjective Pricing Methods
• Loss Leader Pricing Method:

– In this type of Pricing Method, the Menu Items are

Priced very low.
– The philosophy for this Pricing method is that
the Guests will be attracted to the Operation
due to Low Prices and will then buy other
items while they are there (Spin Off Business).
– In this case, it is very important to sell other items
to make Profit. This Pricing method is used as an
Early Bird Promotion to attract specific market
segments.
 Subjective Pricing Methods
• The Intuitive Price Method:
– Like the name suggests, Prices are set
by Intuition of the Operator alone. The
Operator takes a little more than a
“Wild Guess” about the Selling Price.

– It differs from the Reasonable Price

Method in that it takes a little less effort to
determine the price as one does not
consider what would represent Value to
the Customer.
 Subjective Pricing Methods
• Drawbacks:
a) Cannot relate to the Profit Requirements of
the Operation.

c) Cannot relate to the Cost of a Menu Item.

e) Solely based on Assumptions, Guess Work

and Hunches.

g) Seldom works in an era where Consumers

are looking for “Value for Money” and AP
Prices of Ingredients are sky rocketing.
 Objective Pricing Methods
• Simple Mark –Up Pricing Methods
– Ingredient Mark – Up
– Prime Ingredient Mark – Up
– Mark – Up with Accompaniments Costs
• Contribution Margin Pricing
Method
• Ratio Pricing Method
• Simple Prime Costs Method
• Specific Prime Costs Method
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods
– It considers a Mark – Up from the Cost of
Good Sold (In the case of a Menu Item,
that would be the Standard Food Cost).

– The Mark – Up is designed in such a way

that it covers all Costs to Yield the Desired
Profit Levels.
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
a) Ingredient Mark – Up Method
♦ This Pricing method attempts to account
for all Product Costs (Food Cost in case
of Food and Beverage cost in case of
Beverage).
• Steps:

– Determine Ingredient Costs

– Determine Multiplier to Mark – Up Ingredient

Costs

– Determine the Base Selling Price.

 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
b) Ingredient Mark – Up Pricing:
Multiplier = 1
Desired Food Cost Percentage
♦ Example:
♦ If you want to keep your Food Cost as
40% then:
♦ Multiplier = 1 / 40%
= 1 / .40
= 2.5
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
Ingredient Mark – Up Pricing:
♦ Assume that a Seafood Platter has a
Standard Food Cost / Portion of a Seafood
Platter is $ 5.32
♦ If a Food Cost % of 40% is desired:
♦ Base Selling Price (B.S.P.) = $ 5.32 x 2.5

= $ 13.30
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
b) Prime – Ingredient Mark – Up Pricing
• This method differs from the
Ingredient Mark – Up Pricing in that
it concerns itself with only the
Prime Ingredient of the Menu Item.
• Only the Cost of the Prime
Ingredient is Marked Up. The
Multiplier is usually higher in Order
to account for the Cost of the
ancillary ingredients in the recepie.
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
b) Prime – Ingredient Mark – Up Pricing
(Example)
– Using the same example as above, Consider
the Cost of Prime Ingredient in a Seafood
Platter as $ 2.65 (Prime Ingredient being
Lobster)
– The Multiplier = 5 (Higher than the regular M
to account for other ingredients)
– Hence, B.S.P.
= $ 2.65 x 5
= $ 13.25
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
b) Prime – Ingredient Mark – Up Pricing
– If the Cost of the Prime Ingredient increases to $
2.75 per Dinner Portion, then the new B.S.P.
= $ 2.75 x 5
= $ 13.75
– The Pricing method approach assumes that the
Cost of other Recipe Ingredients increases in
Proportion to the Cost of the Prime Ingredient.
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
c) Mark – Up with Accompaniment Costs:
– In this pricing method, the Operator
determines the ingredient costs based
only upon the Entrée items and then a
Standard Accompaniment cost / Plate Cost
is added before Multiplying by a Mark –
Up.
 Objective Pricing Methods
• Simple Mark – Up Pricing Methods:
c) Mark – Up with Accompaniment Costs:
• Example:
– Entrée / Primary Costs = $ 3.15
Plate Cost = $ 1.25
Estimated Food Cost = $ 4.40
Mark – Up Multiplier = $ 3.30
Base Selling Price = 14.52
 Objective Pricing Methods
• Determining the Multiplier:
i. The Mark – Up Pricing Methods are simple
to use and hence are commonly used in the
Hospitality Industry.

i. A significant disadvantage involves

determining the Desired Food Cost %.

i. Pricing method does not reflect higher /

lower Labor Costs / Utility Costs associated
with the Menu Item.
 Objective Pricing Methods
• Contribution Margin Pricing
Method:
– Contribution Margin
= Selling Price – Food Cost

– We can define Contribution Margin as the

Amount left after deducting the Food Cost
from the Selling Price of the Menu Item.
This is amount left behind to meet all Non
Food Expenditure and Profit
Requirements.
 Objective Pricing Methods
• Contribution Margin Pricing Method:
– Example: Consider the given data obtained from
the Operating Budget of the Restaurant:

• Non – Food Costs = $695,000

• Profit Required = $ 74,000
• No. of Guests Expected to be served = 125,000

• With the above information, compute the

B.S.P. of a Menu Item with a Food Cost per
portion of $4.60.
 Objective Pricing Methods
• Contribution Margin Pricing Method:
– Step A)
Determine the Avg. C.M. per Guest:
Avg. C.M. / Guest = (Non F.C. + Profit Req.)
Total No. of Guest Served
= ($ 695000 + $ 74000) / 125000
= $ 6.152
– Step B)
Determine the B.S.P:
B.S.P. = $ 4.60 + $ 6.152 = $ 10.8
 Objective Pricing Methods
• Ratio Pricing Method:
• Data:
• Food Costs = $ 435,000
• Non – Food Costs = $ 790,000
• Profit Requirement = $ 95,000
• Standard Food Cost of Menu Item = $ 4.75
• Step A) Determine the Ratio of Food
Costs to N.F.C and Profits:
(All N.F.C. + Profit) / Food Costs = Ratio (R)
 Objective Pricing Methods
• Ratio Pricing Method:
– Ratio = ($ 790000 + $ 95000) / $ 435000
– Ratio = 2.03
• This Ratio implies that for every $ 1
earned to cover Food Cost we have to
earn $ 2.03 to cover N.F.C. and Profit
Requirements
• Step B) Amount of N.F.C. and Profit
Required:
– The Cost of the Menu Item is $ 4.75
– Amount required to cover all Non F.C. and Profit
Requirements
= $ 4.75 x 2.03 = $ 9.64
 Objective Pricing Methods
• Ratio Pricing Method:

• Step C) Determining the Base

Selling Price for Menu Item:

B.S.P. = $ 4.75 + $ 9.64 = $ 14.39

 Objective Pricing Methods
• Simple Prime Costs Method:
• The term Prime Costs refers to the most
significant Costs in a Food & Beverage
Service Operation. Prime Costs for any
F&B Operation would be:
a) Labor Costs
b) Food Costs
iii. This method involves assessing
Labor Costs and Food Costs for the
operation and then factoring these
into the Pricing Equation.
 Objective Pricing Methods
• Simple Prime Costs Method:
– Data:
Menu Item Food Cost = $ 3.75
Labor Cost = $ 210,000
Number of Exp. Guest = 75,000
Desired Prime Cost % = 62%
 Objective Pricing Methods
• Simple Prime Costs Method:
– Step A) Labor Costs per Guest =
$ 210,000 / 75,000
=$ 2.8
– Step B) Determine the Prime Cost per
Guest
= $ 3.75 + $ 2.8
= $ 6.55
 Objective Pricing Methods
• Simple Prime Costs Method:
– Step C) Computing Base Selling Price:

B.S.P. = Prime Costs per Guests

Desired P.C.%

B.S.P. = $ 6.55 / 62 %
= $ 10.56
• An obvious disadvantage of this Pricing method
is to assign an equal share of Labor Costs to all
Menu Items. This is not true as the Labor Cost of
each item may greatly differ.
 Objective Pricing Methods
• Specific Prime Costs Method:
– In this type of Menu Pricing the F&B Operator
develops mark –ups for Menu Items which takes
into account their Food Costs and also their Fair
Share of Labor Costs.

– This method tries to overcome the limitations

of the Simple Prime Costs Method.

– In this method, Menu Items requiring more labor

intensive preparation would have a higher mark –
up and those involving less labor during
preparation would have a lower mark – up.
 Computations for Specific Prime Costs Method
The Operator first divides all Menu Items into 2 Categories. One which requires extensive labour during preparation and
Step A) the other which does not require extensive labour preparation. This decision is based with the Operator.
The Operator then assigns % of Total Food Cost and Labor Costs to each Menu Item. All % are in relation to the Total
Step B) Food Revenue.
60% of the Total Food Cost is expended on Items requiring extensive Labor during preparation. (Cat A Items)
40% of the Total Food Cost is expended on Items not requiring extensive Labor during preparation. (Cat B Items)
e:

55% of all Labour Costs is incurred for Preparation of all Menu Items.
pl
ma

45% of all Labor Costs is incurred for Non - Preparation Activities. (Waiting / Clean -Up)
Ex

Note: The above % can be computed from the Operating Budget of the Food & Beverage Operation.

Budget Item Operating Budget % CAT A Items CAT B Items Remarks

Food Cost 35% 60% of 35% = 21% 40% of 35% = 14%
Negligible Costs of Preparation
associated with CAT B Items. Hence we
assign all Preparation related Labour 0 for CAT
Labor Cost 30% 55% of 30% = 16.5% Cost to CAT A Items B
30% -16.5% = 13.5% is the Labour Cost % for Non - Preparation Related Activites. It is assumed that that this
% is shared between CAT A. and CAT B. Items
60% of 13.5% = 8.1% 40% of 13.5% = 5.4%
All Other Costs 20% 60% of 20% = 12% 40% of 20% = 8%
Profit 15% 60% of 15% = 9% 40% of 15% = 6%
Total 100 66.6 33.4
Mark-Up 2.86 3.17 2.39

In order to compute Base Selling Price of the Menu Item, simply Multiply the Standard Food Cost of the Menu Item by the
Note: appropriate Multiplier depending on the Category of the Menu Item.
 Objective Pricing Methods
• Specific Prime Costs Method:
– Disadvantages:
i. Very Time Consuming as All Menu
Items have to be Classified and
then the % Costs have to be
allocated to each Cat.

iii. Assumption that all other Costs

vary in relationship to the Food
Cost Associated with the Menu
Item.
 Pricing Considerations
• The Base Selling Price is the Starting
Point for deciding the S.P. of a
Menu Item. The B.S.P. is further
subjected to further assessment
based on several factors.
• Factors upon which the S.P. is
decided:
a) Concept of Value
b) Law of Supply and Demand
 Pricing Considerations
• Factors upon which the S.P. is
decided:
– Volume Concerns – Higher the Volume
/ Turn Over lower the Overheads and
vice versa.

– Competition

– USP – Unique Sales Proposition

 Evaluating the Menu
• The menu is the most important tool
influencing the success or failure or a
Food & Beverage Operation.
• The Process of Menu Engineering is
an increasingly popular tool in
Evaluating the menu.
• Any menu item is evaluated on the
basis of two criteria Popularity and
Profitability.
 Evaluating the Menu

• Based upon the criteria of Popularity and

Profitability, the Menu item can be
classified into 4 Categories:
• STARS: High Popularity and High Profitability
• PLOWHORSES: High Popularity and
Low Profitability
• PUZZLES: Low Popularity and High
Profitability
• DOGS: Low Popularity and Low
Profitability
POPULARITY
PLOWHORSE STARS
MENU MIX

DOGS PUZZLES

CONTRIBUTION
MARGIN

THE MENU ENGINEERING GRID

 Evaluating the Menu
• In order to classify the
Menu Item into these 4
categories, we must
device a standard
measure of Popularity
and Profitability.
 Evaluating the Menu
• Defining Profitability:
– The basis of measuring the degree of
Profitability of a menu item is the “Average
Contribution Margin (A.C.M.).

– A menu item is said to be Profitable when

it’s individual C.M. is greater than A.C.M.

A.C.M. = Total Contribution Margin

Total Menu Items Sold
 Evaluating the Menu
• Defining Popularity:
– The basis of measuring the degree of
Popularity of a Menu Item is called as the
“Popularity Index.”

– The purpose of analysis, each menu item

is said to be equally popular: i.e. each
menu item contributes an equal share to
the total number of units sold.
 Evaluating the Menu
• Therefore, ideally the Popularity of
each menu item is computed as 100%
(Total No. of Units Sold) / Total No. of
Items on the Menu.

– Example: If there are 10 Items listed on

the menu, then ideally the expected
popularity of each menu item should be
100% / 10 = 10% (10% of the Total No. of
Units Sold).
 Evaluating the Menu
• Menu Engineering
assumes that an item is
Popular if it’s unit sales
equal or exceed 70% of
the Expected Sales of the
Item or 70% of 10% as per
the above example = 7%
 MENU ENGINEERING WORKSHEET
Restaurant: Mama Neomi's Café Date: 1/9/05
Meal Period: Dinner

No. Sold Menu Item Food Menu Menu Menu CM MM % Menu

Menu Item Name (MM) Mix % Cost Item S.P. Item C.M. Costs Revenue C.M. Category Category Class

Chicken Dinner 420 42 5.21 7.95 2.74 2188.2 3339 1150.8 LOW HIGH HORSE
Seafood Platter 360 36 9.95 14.5 4.55 3582 5220 1638 HIGH HIGH STAR
Lamb Chops 150 15 8.5 12.5 4 1275 1875 600 HIGH LOW PUZZLE
U.S. Tenderloin 70 7 7.95 9.45 1.5 556.5 661.5 105 LOW LOW DOG

Totals 1000 100 7601.7 11095.5 3493.8

Defining Popularity
Expected Popularity of Individual Menu Items = 100% / 4 = 25%
Hence Each Item should ideally sell = (70% of 25%) of 1000 = 175 Units

Defining Profitability
Computing Average Contribution Margin = Total Contribution Margin / Total No. of Menu Items Sold
Average Contirbution Margin = 3493.8 / 1000 = $ 3.4938
IMPROVING THE MENU
• Carrying out the Menu Engineering
Exercise is only useful if the information
obtained from it is used to improve the
Menu.
WHAT WOULD YOU DO
WITH THIS
INFORMATION???
 IMPROVING THE MENU
• Managing the Plow Horses:
– (High Popularity / Low Profitability):
• Guests like these items, however, they do not
Contribute much to your Profit Requirements
(Low Contribution Margin).
b) Increase the Prices:
• The item is Popular as it may represent great
value to the guest. Upon increasing the Price, the
item may still remain popular due to it’s
uniqueness to your property and will hence
contribute a higher C.M.
 IMPROVING THE MENU
i. Relocate the item to a lower profile of the
menu. Since, it is popular, some guests will
search it out and other will then
concentrate on a more desirable areas of
the Menu where we could position more
Profitable Items.
ii. Shift Demand to more more Profitable
Menu Items by Suggestive Selling.
iii. Provide lower cost meal accompaniments,
in this way the C.M. of the Menu Item
would increase.
 IMPROVING THE MENU

i. Assess the Direct Labor Cost involved.

iii. Consider Portion Reduction. By reducing

the quantity of the food served, the Food
Cost of the Item may be reduced
increasing the C.M.
 IMPROVING THE MENU
• Managing Puzzles:
– (High Profitability and Low Popularity Items)
b) In this case the challenge is to
increase the Unit Sales of this menu
item.
i. Shift demand to these items: Techniques
are re-positioning on the menu,
Suggestive Selling, Advertising (Table
Talkers / Menu Boards / Promotions etc.)
ii. Reducing the Price: By reducing the price
such that the C.M. of the item still
remains higher than the average, the
Value to Guests might be increased.
 IMPROVING THE MENU
i. Add Value to the Item:
Offering a larger Portion size, more
accompaniments, better quality
ingredients and garnish may all add
value to the item. These steps will
decrease your C.M. and hence Profits,
but maintain it so that it is still greater
than average.
 IMPROVING THE MENU
• Managing Stars:
– (High Profitability and High Popularity)
ii. Maintain rigid specification. To not try to
alter the quality of product.
iii. Place in a highly visible / desirable area of
the menu. Make sure that guests are aware
of it.
iv. Test for Price In-elasticity. The item may be
Popular with a guest because it represent
Value for Money or because it is unique to
your operation only.
v. Suggestive Selling
 IMPROVING THE MENU
• Managing Dogs:
– (Low Profitability and Low Popularity).
ii. These deserve removal from the menu.
However, if you are not going to revise your
Menu Items in the near future we could at least
raise the Price of the Item so that it’s C.M.
increases.
iii. When a Dog involves significant Labor Costs, is
not Popular and Profit Oriented and does not
allow for the use of the leftovers and has a
relatively short storage life, then reasons for
removal from menu become more compelling.
COMPUTER BASED MENU MANAGEMENT
• Data can be entered into a Program’s
Database Manually.
• This can also be done automatically
through an interfaced system with a
Recipe Management Software or an
external POS System.
• The Parameters to be entered would
include:
i. Menu Item Name
ii. No. of units of the Menu Item Sold
iii. Food Cost of the Item
iv. Selling Price of the Item
COMPUTER BASED MENU MANAGEMENT

• Reports generated by the Computer

Based Menu Management Software
are:
i. Menu Item Analysis
ii. Menu Mix Analysis
iii. Menu Engineering Summary
iv. Four Box Analysis
v. Menu Engineering Graph
COMPUTER BASED MENU MANAGEMENT –
Sample Menu Item Analysis Report
Units Portion
Item Name Item S.P.
Sold Cost
Fried Shrimp 210 4.85 7.95
Fried Chicken 420 2.21 4.95
Chopped Sirloin 90 1.95 4.5
Prime Rib 600 4.95 7.95
King Prime Rib 60 5.65 9.95
NY Strip Steak 360 4.5 8.5
Top Sirloin 510 4.3 7.95
Red Snapper 240 3.95 6.95
Lobster Tail 150 4.95 9.5
Tenderloin Tips 360 4 6.45
 COMPUTER BASED MENU MANAGEMENT –
Sample Menu Mix Analysis Report
Menu Mix Analysis
Units Portion Menu Menu Menu Menu CM MM Item
Item Name Item S.P. Remarks
Sold Cost Mix % C.P. Revenue C.M. Category Category Category
Fried Shrimp 210 4.85 7.95 7.0 1018.5 1669.5 3.10 L H HORSE
Fried Chicken 420 2.21 4.95 14.0 928.2 2079.0 2.74 L H HORSE
Chopped Sirloin 90 1.95 4.50 3.0 175.5 405.0 2.55 L L DOG
Prime Rib 600 4.95 7.95 20.0 2970.0 4770.0 3.00 L H HORSE
King Prime Rib 60 5.65 9.95 2.0 339.0 597.0 4.30 H L PUZZLE
NY Strip Steak 360 4.50 8.50 12.0 1620.0 3060.0 4.00 H H STAR
Top Sirloin 510 4.30 7.95 17.0 2193.0 4054.5 3.65 H H STAR
Red Snapper 240 3.95 6.95 8.0 948.0 1668.0 3.00 L H HORSE
Lobster Tail 150 4.95 9.50 5.0 742.5 1425.0 4.55 H L PUZZLE
Tenderloin Tips 360 4.00 6.45 12.0 1440.0 2322.0 2.45 L H HORSE
3000 100 12374.7 22050
 COMPUTER BASED MENU MANAGEMENT –

Menu Engineering Summary

Particulars Totals Average Low High
Price 22050 7.465 4.5 9.95
Food Cost 12374.7 4.131 1.95 5.65
Contribution Margin 9675.3 3.334 2.45 4.55
Demand Factor 3000 300 60 600
Food Cost % 56.12
Number of Items 10
 COMPUTER BASED MENU
MANAGEMENT – Four Box Analysis

HORSE STARS
Fried Shrimp
Fried Chicken
Prime Rib NY Strip Steak
Red Snapper Top Sirloin
Tenderloin Tips

************************************************************
DOGS PUZZLE

King Prime Rib

Chopped Sirloin Lobster Tail
 Menu Engineering Graph
Menu Engineering Graph

700
3.34 CM

600

500
Menu Mix

400

300

70% MM
200

100

0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Contribution Margin
 Additional
Information
(For the Smart
Guys Only)

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Additional Info and Review
♦ MARKUPS: A markup is the difference
between the cost of the item and selling
price. Some operations can take a low
markup depending on high volume while
others require high markups due to lower
volumes.Hence the prices must not only
cover the cost but also the desired profit.

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Additional Info and Review
♦ VALUE PERCEPTION: What the consumers think of
the desirability of the product as compared with its menu
price. This is important for the menu pricing. Prices
influence the customers thinking on the value of the menu
item.The way in which customers perceive value is
often manipulated favorably by suggesting that there is
something special about a product that competing
products do not have.
♦ We call this development of special, unique characteristics
in a product or DIFFERENTIATION. If a product can be
given favorable differentiation, buyers will choose this
instead of a competing product, and the seller has better
control of the market and its pricing.

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Additional Info and Review
♦ PRICING PSYCHOLOGY: According to
studies made by various planners on pricing and
how price affects demand, many pricing strategies
try to avoid the whole numbers and shade prices
just below them thereby using the highest decimal
denominations. Hence market research should be
able to point out as to what the market will pay in
the way of prices. Adequate market information
has to be made available which will lead to
precision pricing. A menu can be worked by first
deciding a base price and top price and the menu
can be worked within that range.
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Additional Info and Review
♦ SUPPLY AND DEMAND PRICING:
Many operators are either not aware or do not know
how the laws of supply and demand work. Supply
increases when someone in the neighborhood
opens a competing operation nearby. Hence prices
at the older unit have to drop to retain the demand
if not to increase it. If cost of the food rises then
prices on the menu must also adjust to this.

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Additional Info and Review

♦ Advertising can also create demand. A bar may

decide to have a two for one promotion, which is
merely a device for low pricing-Happy hours.
This is specifically done to stimulate demand
during low-volume periods. Thus the extra volume
generated can help to recover the extra bar cost.
Conversely, to slow down demand in a certain
period, a night club may raise its price to
maximize the yield.

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