Menu Planning, Costing, Engineering

04/11/23F&B Management - III Yr. - Bhavin

Parekh 1

Menu Planning, Menu Pricing &

Menu Engineering

Food & Beverage Management

III Yr.

Bhavin Parekh


Parekh 2

AREAS of FOCUS

Menu Planning Menu Costing & Pricing

a) Different types of Pricingb) Why are they used c) Pricing Types with their examples

Menu Evaluationa) Defining Popularityb) Defining Profitability


Parekh 3

AREAS of FOCUS

Cont’d…c) Evaluating the Menud) Improving the Menu

Menu Engineering and Analysis using Computer Based Systems

a) MEAb) Menu Item Analysisc) Menu Mix Analysisd) Four Box Analysise) Menu Engineering Graph

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

Menu Planning

Purchasing

Receiving

Storing Issuing

Preparing

Cooking

Holding Serving

Guest Satisfaction

Production

Activities

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”.


• 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.


• 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.


• 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.


• 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.


• 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

Guest

Quality of Item

Wants & Needs

Concept of Value

Item Price

Object of Visit

Socio - Economic

Demographic Concerns

Ethnic / Religious Concerns

Cost

Availability

Peak VolumeProduction / Op. Concerns

Sanitation

Layout

Equipment

Flavor

Visual Appeal

Temperature

Texture/Shape

Aroma

Consistency

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 Costs)

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 Levelsc) Product’s Availability / Seasonalityd) Quality and Price Levelse) 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.


• 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.


• 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.


• 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.


• Drawbacks:a) Cannot relate to the Profit Requirements of

the Operation.

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

c) Solely based on Assumptions, Guess Work and Hunches.

d) 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


• 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:a) 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


• Simple Mark – Up Pricing Methods:a) 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.


(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


– 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.

ii. A significant disadvantage involves determining the Desired Food Cost %.

iii. 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


• 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


• Ratio Pricing Method:

• Step C) Determining the Base Selling Price for Menu Item:

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


• Simple Prime Costs Method:i. 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

ii. This method involves assessing Labor Costs and Food Costs for the operation and then factoring these into the Pricing Equation.


• 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.

Step A)

Step B)

Computations for Specific Prime Costs MethodThe Operator first divides all Menu Items into 2 Categories. One which requires extensive labour during preparation and 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 Food Revenue.60% of the Total Food Cost is expended on Items requiring extensive Labor during preparation. (Cat A Items)

Note:

0 for CAT B

Note:

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)55% of all Labour Costs is incurred for Preparation of all Menu Items.45% of all Labor Costs is incurred for Non - Preparation Activities. (Waiting / Clean -Up)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

Negligible Costs of Preparation associated with CAT B Items. Hence we assign all Preparation related Labour Cost to CAT A Items

Food Cost 35% 60% of 35% = 21% 40% of 35% = 14%

Labor Cost 30% 55% of 30% = 16.5%

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%

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

In order to compute Base Selling Price of the Menu Item, simply Multiply the Standard Food Cost of the Menu Item by the appropriate Multiplier depending on the Category of the Menu Item.

Mark-Up 2.86 3.17 2.39Total 100 66.6 33.4

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.

ii. 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:

i. STARS: High Popularity and High Profitability

ii. PLOWHORSES: High Popularity and Low Profitability

iii. PUZZLES: Low Popularity and High Profitability

iv. DOGS: Low Popularity and Low Profitability

ME

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CONTRIBUTION CONTRIBUTION MARGINMARGIN

THE MENU ENGINEERING GRIDTHE MENU ENGINEERING GRID

PUZZLESPUZZLES

PLOWHORSEPLOWHORSE STARSSTARS

DOGSDOGS PUZZLESPUZZLES

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%

Date: 1/9/05

420 42 5.21 7.95 2.74 2188.2 3339 1150.8 LOW HIGH HORSE360 36 9.95 14.5 4.55 3582 5220 1638 HIGH HIGH STAR150 15 8.5 12.5 4 1275 1875 600 HIGH LOW PUZZLE70 7 7.95 9.45 1.5 556.5 661.5 105 LOW LOW DOG

1000 100 7601.7 11095.5 3493.8

Chicken Dinner

Lamb ChopsSeafood Platter

U.S. Tenderloin

Menu C.M.

CM Category

MM % Category

Menu ClassItem S.P. Item C.M.

Menu Costs

Menu RevenueMenu Item Name

No. Sold (MM)

Menu Mix %

Item Food Cost

MENU ENGINEERING WORKSHEETRestaurant: Mama Neomi's Café

Meal Period: Dinner

Average Contirbution Margin = 3493.8 / 1000 = $ 3.4938

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

Totals

Defining Popularity

Defining ProfitabilityComputing Average Contribution Margin = Total Contribution Margin / Total No. of Menu Items Sold

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).

a) Increase the Prices:i. 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 MENUii. 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.

iii. Shift Demand to more more Profitable Menu Items by Suggestive Selling.

iv. Provide lower cost meal accompaniments, in this way the C.M. of the Menu Item would increase.

IMPROVING THE MENU

v. Assess the Direct Labor Cost involved.

vi. 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)

a) 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 MENUiii. 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)

i. Maintain rigid specification. To not try to alter the quality of product.

ii. Place in a highly visible / desirable area of the menu. Make sure that guests are aware of it.

iii. 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.

iv. Suggestive Selling

IMPROVING THE MENU• Managing Dogs:

– (Low Profitability and Low Popularity).i. 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.

ii. 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

210 4.85 7.95420 2.21 4.9590 1.95 4.5

600 4.95 7.9560 5.65 9.95

360 4.5 8.5510 4.3 7.95240 3.95 6.95150 4.95 9.5360 4 6.45

Item NameUnits Sold

Portion Cost

Item S.P.

Fried ShrimpFried Chicken

Chopped SirloinPrime Rib

King Prime RibNY Strip Steak

Top SirloinRed SnapperLobster Tail

Tenderloin Tips

COMPUTER BASED MENU MANAGEMENT – Sample Menu Mix Analysis Report

210 4.85 7.95 7.0 1018.5 1669.5 3.10 L H HORSE420 2.21 4.95 14.0 928.2 2079.0 2.74 L H HORSE90 1.95 4.50 3.0 175.5 405.0 2.55 L L DOG

600 4.95 7.95 20.0 2970.0 4770.0 3.00 L H HORSE60 5.65 9.95 2.0 339.0 597.0 4.30 H L PUZZLE

360 4.50 8.50 12.0 1620.0 3060.0 4.00 H H STAR510 4.30 7.95 17.0 2193.0 4054.5 3.65 H H STAR240 3.95 6.95 8.0 948.0 1668.0 3.00 L H HORSE150 4.95 9.50 5.0 742.5 1425.0 4.55 H L PUZZLE360 4.00 6.45 12.0 1440.0 2322.0 2.45 L H HORSE3000 100 12374.7 22050

Menu Mi x Anal ysi sItem Name

Units Sold

Portion Cost

Item S.P.Menu

RevenueMenu C.M.

CM Category

MM Category

Item Category

NY Strip SteakTop Sirloin

Red Snapper


Chopped SirloinPrime Rib

RemarksMenu Mix %

Menu C.P.

Lobster TailTenderloin Tips

King Prime Rib

COMPUTER BASED MENU MANAGEMENT –

Totals Average Low High22050 7.465 4.5 9.95

12374.7 4.131 1.95 5.659675.3 3.334 2.45 4.553000 300 60 60056.12

10Food Cost %

Number of Items

Particulars

Menu Engineering Summary

PriceFood Cost

Contribution MarginDemand Factor

COMPUTER BASED MENU MANAGEMENT – Four Box Analysis

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STARS

DOGS

HORSE

PUZZLE

NY Strip SteakTop Sirloin


Prime RibRed Snapper

Tenderloin Tips

King Prime RibLobster TailChopped Sirloin

Menu Engineering GraphMenu Engineering Graph

0

100

200

300

400

500

600

700

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Contribution Margin

Me

nu

Mix

70% MM

3.34 CM


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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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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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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.

Menu Planning, Costing, Engineering

Technology

Transcript of Menu Planning, Costing, Engineering