Use Menu Engineering to Increase Profits

 
March 26, 2011 | by Ed Zimmerman

What if your top line revenue remained flat and your bottom line profit grew by 3-5%? How do successful independents and chains grow so rapidly, the answer is through menu engineering.

Menu engineering is a sophisticated study that observes how restaurant patrons make item selections and then designs or engineers the menu to encourage consumers to select certain items over others. Well-engineered menus sell higher gross profit items that satisfy the consumer and add incremental gross profit dollars to the restaurant operator. If you consider your menu a decorative price list, you are missing opportunities.  Your menu is your most powerful merchandising tool.  Your menu reflects what makes your pizzeria special and profitable.

Menus perform three primary functions; first, they position the restaurant. As an example, paper menus in a carry out pizzeria are appropriate and smart; consumers can take them home for easy re-ordering. But a paper menu in a white-table cloth pizzeria with an extensive Italian wine list confuses customers. Second, menus Merchandise – they offers choices to the consumer and finally, they sell. The purpose of menu engineering is to sell the items you want to sell.

Picture you are out to dinner with family and friends. The wait staff visits the table to ask if you made your choice yet. You and your tablemates have been sipping drinks and catching up, the social pressure to “place an order” is high so you grab the menu, scan the pictures and text and pick. Most people dine out primarily to enjoy their time so many items will satisfy their food desires. Menu engineering encourages consumers to buy the items that your kitchen staff performs well and drives additional profit.

The Typical Pizza Menu


 

The first step to engineer your menu is to calculate your Theoretical Food Cost. The simple method is to add the value of all ingredients in a dish and divide by the selling cost (see graphic on the side.) Once you determine all the items, you must rank, not by food cost percentage, but by Gross Profit Dollar contribution.

Food cost percentage is an interesting management tool, but it is not the determiner of profitable operations. Ask your accountant or your banker, you take dollars to the bank, not percentages. Excellent menu engineering that satisfies customers’ choices and delivers additional gross profit to you is the key to success.

Menu Engineering is a long and important study. There are many learnings and techniques used by chain restaurants. They pour tens of thousands of dollars into consumer studies, focus groups, eye movement studies, etc. to determine why consumers select the items they buy. Below are some simple improvements you can make.

IMPROVED PIZZA MENU

Placement Matters

Notice a few items. When consumers choose items from a menu they don’t read, they scan. Statistics show that the most chosen items are in the first and second “spots” and the last and next to last. In the above example, selection behavior predicts consumers will choose in order, #1 Greek, #2 Hawaiian, #3 Gourmet, #4 ‘Da Works. This corresponds exactly to the ranking in the food cost analysis.

Vegetarian options are very important today. The Greek Pizza is vegetarian, as is the Vegetarian option “buried” in the middle of the menu. Therefore, a consumer scanning for vegetarian finds Greek first and chooses it. This creates a $10.38 gross profit versus the $9.12 of the regular vegetarian. The consumer gets what they want AND you make an additional $1.26. Project the effect on your bottom line if you made an additional $1.00 gross profit on every order. This is the power of Menu Engineering.

Review your current menu; chances are the first item you feature is Cheese Pizza like the Typical Menu shown above. Plain pizza is typically a low profit item as it is the commodity, along with pepperoni, that drives your coupon shoppers. Additionally, children, who do not even read the menu, usually choose the Cheese Pizza. In featuring the Cheese first, you give up your highest gross profit Placement for a low profit item that the key buyer does not even notice.

Call Outs Matter

This is a simple change you can make but notice the red color used to “call out” vegetarian on the Greek Pizza. Boxes around items also drive eyes. Feature a “House Special” in bold with a box. Boxes placed in the lower left hand corner draw the eye. This is a hot spot, use it wisely. Many restaurants feature a favorite item in this “spot”; it should be a high gross profit contributor, not just an item your patrons like. High promotion of a low gross profit item increases your chance to lower your overall margin.

Descriptions Matter

Another technique to drive sales is the description. Re-read the description above of the Greek and the Vegetarian, which would use choose? Again gently encourage the patron to choose the item that satisfies both you and them.

Pictures Matter

Yes, people eat with their eyes. Enticing color pictures of your food, not generic pizza shots, sell products. However, menus have limited real estate, you cannot feature all items (except online). Again, feature beautiful pictures of a limited number of high Gross Profit items. Only use color pictures, not black & white. If you print your carry out menu in one or two colors, DO NOT show pictures. Food in one-color looks terrible, either use full color or not at all. Do not use poor quality photos. Most people have digital cameras today, do not use them. Food photography is an art; if you are not prepared to spend a few thousand dollars to hire a professional photographer and food stylist, do not use pictures. Photos only work when done correctly; in this case, less is more, if you do not have top quality, skip it.

Buried Price Matters

Notice where the price appears on the Improved Menu, it is “buried” in the description versus appearing at the end with dots -----. In the Typical Menu above, pizza is listed, lowest price to highest price. People naturally choose items priced in the middle. Burying prices allows people to buy what they want rather than buy on price. Especially in groups, people are hesitant to order higher priced items as it appears piggish or greedy. Buried prices give permission to buy what you want.

Reprints Matter

Many pizzerias are reluctant to reprint menus because of cost and/or they are afraid to change prices. When costs spike, sometimes you must raise prices. Pizzeria operators frequently complain they cannot raises prices because they have printed prices on menus that customers have home in their menu drawer. The simple solution is to print menus with expiration dates, just like coupons. You can always choose to honor “expired menu prices”, but in the case where you have raised prices, you alerted customers that prices are subject to change.  Gas stations never hesitate to change their price, the cost of oil rises, they raise the price, frequently that day and never with any notice. Consumers know this and accept it. With digital printing today, you can economically change your menu prices, add new items or offer specials by running smaller quantities more frequently. This more flexible approach keeps your menu fresh to regular customers. Pizza.com has a new print program with creative products and affordable prices.

Menu engineering is a topic that takes years to research and perfect; there is much more complexity than can be discussed in a short magazine article. These tips are simple to execute and will provide additional profitability. Begin looking at menus more critically from your competitors and from restaurants that you visit; you will begin to see that some use these techniques and profit from their inclusion. Try a few of the ideas and see if they work for you; you have nothing to lose but extra profit.

Wishing you success in pizza.


Ed Zimmerman / Ed Zimmerman is a pizza industry veteran and President of The Food Connector. His almost four decades of foodservice experience includes food manufacturing and distribution leadership, food industry technology, marketing services and restaurant and grocery operations management.
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