Some Notes About Menu Engineering

SOME NOTES ABOUT CLASSIFICATIONS:
Depending where an item occurs on the matrix, appropriate action should be taken
STARS (High Popularity & High CM):

Are profitable and popular items / leave them alone or perhaps consider raising their price
a bit. It is possible to increase their menu prices without affecting volume.
CASH COWS/plough horses (High Popularity & Low CM): Are relatively unprofitable
but popular items / try to improve their individual contribution margins without
decreasing volume. Optional actions are to increase price, reduce dish cost by modify the
recipe, use less expensive ingredients, or reduce the portion size. Look for a way to keep
them on the menu but increase their contribution margins without decreasing volume.
QUESTION MARKS/puzzles (High CM & Low Popularity): Are comparatively

profitable but relatively unpopular items / keep them on the menu but try to improve
popularity (volume) without substantially decreasing profitability. Optional actions
include price reduction, the renaming of the dish, repositioning the item on menu, item
promotion through staff selling, or removing it from menu.
DOGS (Low CM & Low Popularity):

These are items that are both unprofitable and unpopular, combining low volume and
small contribution margin. These items need to be replaced. If they need to remain on the
menu for some reason, alter them so that they move up to at least the QUESTION
MARK classification. Optional actions include replacing the dish, redesign dish or
removing it from menu. Remove from the menu unless there is a valid reason for
continuing to sell them or profitability can somehow be increased.
...Note: the optional action of "do nothing" applies to all 4 classifications. However, when
you think about it, if you "do nothing" after going through the rigors of a doing a quality
menu analysis and generating a menu engineering worksheet, you have wonder why you
did the analysis in the first place. "do nothing" may apply to a very few, at most, of you
menu items. Remember that your competition is probably not "doing nothing".
Popularity Index ==> a percentage derived by dividing number of item units sold by total
units sold
Item Contribution Margin ==> Item Sales Price minus (variable)Item Food Cost per unit
Item Total Cost ==> number of item unit sold times the Item Food Cost
Item Total Revenues ==> number of item units sold times the Item Sales Price
Item Total Profit ==> number of item units sold times its Item Contribution Margin
Average Contribution Margin ==> Total Item Total Profit divided by the number of units
sold
Item Profit Category ==> If the Item Contribution Margin is less than the Average
Contribution Margin the result is an "L". If the Item Contribution Margin is greater than
the Average Contribution Margin the result is an "H". "L" is for Low and "H" is for High.
Popularity ==> If the item's Popularity index is less than 70% of the average number of
menu items the result is an "L". If the item's Popularity index is more than 70% of the
average number of menu items the result is an "H". "L" is for Low and "H" is for High.
This number "70% of the average number of menu items" in our example, is calculated
by dividing 1 by 5 and then multiplying by .7 and then multiplying the resultant decimal
by 100 to get a percentage. ((1/5) times .7) times 100 which equals 14% (where 5 is the
number of menu items). The only variable number in this calculation will be the number
of menu items, all else remains unchanged in the simple formula.
SOME BACKGROUND INFORMATION ABOUT MENU

ENGINEERING
INTRODUCTION:
Once your menu items have agreed upon and the menu has been printed and is in use,
keeping your food cost and food cost percentage on target, as important as it is, does not
mean that you are maximizing your potential profit. At the end of the financial
accounting cascade, or at the bottom of all the lines, what determines how much profit
there will be is the "Gross Profit", or "Contribution Margin" of the menu items. Let's look
at an example from the Nighthawks Cafe Menu:
Nighthawk Burger
- costs $3.50
- sells for $10.00
- contribution margin $6.50
Chicken of the Night

- costs $4.00
- sells for $12.00
- contribution margin $8.00
In other words, each "Chicken of the Night" sold, compared to the "Nighthawk Burger"
brings in an additional $1.50 in revenue. Multiply that by a hundred per month and we
have and additional $150.00 in revenue or Gross Profit.
Identifying or analyzing dishes that perform well or poorly has probably been practiced
by foodservice owners/managers/chefs since the hospitality business began. Good selling
profitable menu items get promoted (the house specialty or signature dish) and poor
selling, low profit items usually get removed from the menu.
MENU ANALYSIS is the process of applying a wide range of techniques and

procedures to try and improve decision-making regarding marketing and the menu. One
popular approach to successful menu analysis is called "menu engineering". The other
popular approach is the one we all know as "food cost percentage". In the end, a
foodservice operator is often simply trying to answer the questions of (1) are my menu
items priced correctly? (2) am I in the right market for my product?, (3) are the individual
items selling well enough to keep them on the menu? and (4) is my overall profit margin
at an acceptable level?
MENU ENGINEERING was developed by Michael L. Kasavana and Donald J. Smith

in 1982. Based on the very prestigious "Boston Consulting Group's" (BCG) "Matrix
Conceptualization Model" (www.12manage.com/methods_bcgmatrix.html), Kasavana
and Smith's idea began in and grew out of the hospitality industry. Menu engineering is
an empirically driven, deterministic approach for the evaluation of present and possible
future menu pricing, design and content decisions.
The goal of menu engineering is to group dishes into good and poor performers
comparing the performance of each individual menu item (usually only the main
courses). The most frequently used criteria for this menu examination are
1. financial performance (contribution margin)
2. sales volume of each menu item (popularity or sales volume)
Explained another way, this menu examination relies on an accurate analysis of the (1)
popularity (drawn from the sales history) of each menu item and (2) the cost vs. selling
price relationship, commonly known as the "CONTRIBUTION MARGIN". There are
numerous versions to this approach.
All the menu items are then analyzed according to the above two criteria utilizing a four-
section (BCG) matrix to visually present each item's respective performance. Each of the
quadrants of the (BCG) matrix is given a name to represent the "performance
classification achievement" of menu items. Depending where a dish lands on the matrix,
appropriate action should be taken as indicated above.
Some Key Points

1) It is VERY important to understand that because menu engineering uses the technique
of "comparative analysis", there will always be dishes with low popularity and poor
financial performance compared to other menu items. You might want to see how these
"poor performers" actually did when measured against 'forecasted sales' and/or your
financial plan's food and beverage sales budget if you have one.
2) Menu engineering requires accurate information to provide a reliable and valid
analysis. For small-scale, single-roof operations, this data should be collected over a
reasonably long period to have statistical validity.
3) Variations in the range of the period being analyzed will invalidate the analysis.
Menus items must be planned, and remain unchanged (from a cost-selling price
perspective), for at least a few months or you will have insufficient data. When
comparing consecutive periods make sure they are of the same length and that any "odd
occurrences" are accounted for and explained (bad weather, kitchen fire, last minute
convention in town, etc).
4) During the analysis period you make sure that you monitor ingredient costs, yields and
menu item costs accurately. These need to remain a constant, with minimal fluctuations.
5) A frequent and legitimate criticism of Menu Engineering, with its emphasis on
contribution margin, is that this kind of menu analysis tends to favor high-priced items
over low-price ones. The logic is that higher priced items, generally speaking, have the
higher contribution margins. This often results in sales techniques like menu placement
decisions tending to subtly influence the guest to think that an operation is of a higher
quality than it may justify.
IN CONCLUSION:
Managing a foodservice operation to achieve a specific budgeted food cost percentage
has historically been an ingrained fundamental principle of the foodservice business.
How well your menu is "performing" and contributing to the budgeted food cost profit
target can be approached and analyzed in many different ways using many various
techniques and procedures.
Current "In vivo" practice tends to focus on aggregated hard data and traditional matrix
analysis.
"Practical" approaches, on the other hand, will focus on the use of market, industry,
customer, and competitor analyses.
A "hybrid" approach directs the application of marketing concepts and techniques based
on the menu engineering and contribution margin concepts to an effort to achieve the best
possible financial results.
"Qualitative menu analysis" increasingly supports the position that the profitability of
individual menu items is only one of several important criteria when designing a menu
and it is probably management's execution and decision making that will determine the
success or failure of a new or revised menu.

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SOME NOTES ABOUT CLASSIFICATIONS:

STARS (High Popularity & High CM):

QUESTION MARKS/puzzles (High CM & Low Popularity): Are comparatively

DOGS (Low CM & Low Popularity):

SOME BACKGROUND INFORMATION ABOUT MENU

Chicken of the Night

MENU ANALYSIS is the process of applying a wide range of techniques and

MENU ENGINEERING was developed by Michael L. Kasavana and Donald J. Smith

Some Key Points

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