The concept of menu engineering refers to a set of rules that restaurant managers and chefs should follow to maximize their dishes’ profitability per guest by encouraging the choice of certain items. From assessing your menu cost and minimizing waste to choosing the right wording and organizing items into categories, here is all you need to know to bring your business to the next level by optimizing (at this point, you should know that this one of our Choco team’s favorite words) your menu.
Back in 1970, the Boston Consulting Group introduced a series of practices to help the analysis of products and decision-making process within their hospitality business. A decade later, Professor Donald Smith of Michigan State University spread this concept in the restaurant industry - still, nowadays this study applies to the placement of items within any type of menu, whereas digitized, on a board, or à-la-carte. This strategy consists of strategically placing the most profitable and popular menu options, as well as designing and marketing them according to specific rules that can increase profits by 10-15%. So, what are the criteria to follow when creating a restaurant menu? The science of menu engineering is all about organizing items into sections and reserving the right spot for the right dishes: along with the visual presentation, the arrangement of your menu options affects customers' choices. Now, what does “right dishes” mean, exactly? And what for “right spots”?
Calculating food cost and gross profit
Before moving on to the best practices to list and present your dishes, it is important to know how to calculate menu cost. This means essentially breaking down every menu item into its ingredients and determining how much each dish costs. It is a fundamental step to determine the profitability of dishes to then move forward with the next steps. Here’s the basic food cost formula:
🥕 Food Cost = Cost Price ÷ (Selling Price - VAT) %
Here, the cost price is determined by summing up the cost of each ingredient according to the quantity that is used; also, you must calculate your food cost by excluding the VAT from the selling price. The same equation can determine your gross profit, simply by subtracting the food cost as in the following formula:
💵 Gross Profit = 100% - Food Cost
You can use the same formula to calculate your selling price by simply choosing a percentage value of food cost that you would like to achieve:
🍲 Selling Price = (Cost Price ÷ Food Cost) % - VAT
Now that you have determined your selling price, you are able to calculate the related gross profit:
💵 GP = [(Selling price - VAT) - Cost price] / (Selling price - VAT) %
Food cost can also be calculated on a monthly or weekly basis by summing up the final cost of all purchases from suppliers. Here is the formula:
📈 Monthly Food Cost = (Cost Price + or - Stock variance) ÷ (Food revenue - VAT)
Note that, according to whether the value of your stock increases or decreases, the stock variance (meaning, the difference between the opening and closing stocks’ values within a given period) is either subtracted or added. Instead, food revenue is the total of food sales within the same time frame. According to the same formula, you can calculate your gross profit percentage over a period of time:
💵 Monthly GP = [(Food revenue - VAT) - (Cost Price + or - Stock variance)] ÷ (Food revenue - VAT) %
Although your menu should reserve a special place for your most profitable dishes (don’t worry, we’ll explain what this means), you also have to check your sales report to know which are the most popular menu items. There are also other tricks you can follow to increase the profitability of your menu and, at the same time, make it more sustainable by reducing food waste. Especially when observing that food is wasted by customers, you can opt for offering a smaller portion of the same dish, which can also increase your gross profit while leading customers to think that they are getting a better deal for their food. Also, when considering the cost of a dish, you can use the formulas provided and included packaging and labor cost of related in-house operations to have a more accurate value. Now, let’s move on to the core of menu engineering.
Organize your menu into categories and sections
Your menu is most-likely already divided into categories such as entrees, main courses, desserts, drinks, or any other division you might think of including types of meat, vegan and vegetarian options, and so on. While assessing your menu according to a practical and logical division for your guests you should also consider monitoring your most recent sales and gross profit, to then divide your menu items into the following sections within your categories:
⭐ Stars: menu options with high profitability and high popularity
🌊 Plow-horses: menu options with low profitability and high popularity
▫️ Puzzles: menu options with high profitability and low popularity
🐕 Dogs: menu options with low profitability and low popularity
While there is not an exact science to determine what to do once having divided these categories - but rather, your “gut feelings” and experience will suggest you the right path - this division can help you in your decision-making process. Let’s assume that vegan dishes within your main courses present a high level of profitability and popularity. Of course, you want to consider highlighting these options on your menu and placing them at the top - in fact, your customers are more likely to remember the first and last items that are present in your list. However, this information can also determine how you place vegan options within other categories or lead you to give a new twist to your overall menu. For non-popular items, it is important that you and your team investigate the determining factors. Does a change in price increase popularity? Is there anything that your kitchen team can think of to make these items more appealing and adapt them to the latest trends on the market? Remember: simple changes can make a big difference.
Here comes the fun - yet essential - part. Your menu design should take into account different factors like wording, spacing, prices positioning, overall visual presentation, and any additional information, as well as of the way in which your customer is more likely to scan your list (that is different whether you are presenting, for instance, a board or a one-page menu). You want your menu to be clear, approachable, easy to read and to convey your identity. And of course, to drive customers' choices - you can do it by placing the most important items at the top of each category, as well as by boxing or highlighting the “stars” menu option (or the whole category, in case that contains items that are profitable and popular).
Highlighting menu options
You shouldn’t get too crazy with highlighting: one per category is enough. In fact, highlighting many items within a page can automatically bring the customer's eye to the fewer non-highlighted items at the bottom. Within this process, the type of menu plays an important role: one-page menus lead to faster decisions but lower profitability, and the eye usually focuses on the top part, whereas a three panels book-style menu brings customers to focus more on the middle section; the more pages you have, the harder it is to influence customers’ choices. Also, you can opt for highlighting a certain category (for example, entrees) when you want to push it among your customers.
Pictures can also be used to emphasize certain items - a research on the effects of pictures and food names on menu evaluations suggests that adding pictures to descriptive food names can increase customers’ purchase intentions (however, the same doesn’t happen for ambiguously-named dishes); however, remember that using pictures might make your menu look cheaper and less sophisticated.
You want customers to focus on dishes, rather than on price. For this reason, you should avoid emphasizing it by, for example, presenting a list of prices that are organized in a column on the right side of the menu. You rather want to place the value (without the euro or dollar sign, as it leads to thinking “money”) at the end of the description using the same font and size of the menu item and simply separating by double spacing it or using three dots.
Descriptions and additional info
Focus on providing an accurate description of each - when done right, this can lead to a 27% increase in sales, according to a study by the University of Illinois on “how descriptive menu labels influence attitudes and repatronage”. Descriptions can help you strengthen your brand while providing comforting feelings through nostalgic wording - call it “grandma-style” and you’re going to be a winner - or enhancing the quality of your options with sensorial descriptors, cooking-techniques or geographical indicators. You can also reserve a small part of your menu space to spend some words on your story, imagery, mission, or show your producers or trusted partners (and we look forward to seeing Choco as one of them).