Despite being complex creatures, we often overlook simple habits and ignore intriguing aspects of human nature. Understanding decision making processes is undeniably valuable for any business wishing to influence consumers favorably towards their product or service.
In the hospitality industry, it's becoming commonplace to adopt 'Menu Engineering' to enhance sales and profit margins. The concept combines psychology, design, and analytics. In this insight we'll look at the four-step structure of Menu Engineering, and then consider whether it can be applied to other business sectors.
The Four Stages of Menu Engineering.
Unsurprisingly, effective costing comes first. Once a chef has planned the items they wish to put on the menu, careful calculations must be made to ensure the item will be profitable or at least viable. Menu Engineering often takes existing menus and readjusts them accordingly, perhaps finding that there has been no logic behind various pricing structures. Simply put, complex recipes or those with expensive ingredients, will have to be costed higher or removed.
By applying common sense, minimum viable price points can be calculated. It is advisable for one person to undertake the costing process for consistency, ideally the same individual working with ingredient sourcing.
One tip, often overlooked, is to streamline ingredients. Ensuring that ingredients are used in multiple dishes will reduce wastage. For example, having venison in one single item may lead to lots of spoiled meat if that particular dish doesn't sell well on any given day. By adding sides or other mains including venison, or perhaps removing the lone venison dish, there is less risk of being left with a surplus of that ingredient.
When 'engineering' an existing menu, there will be important data to consider for the menu restructuring. Using four simple categories, we split menu items into Stars, Puzzles, Horses and Dogs.
Star items are those that are both highly profitable and highly popular. This may be something as simple as topped fries, with relatively low cost to make but a high margin.
Puzzle items are those that are highly profitable but not yet performing well. Increasing the popularity of these items is the puzzle. These items will likely be key to the design stage, and potential marketing strategy.
Horses, in this sense, are high selling items that tend not to make too much profit. Certain popular items may perform well due to their perceived value (hence low profit to the restaurant). Whilst it may be a fair consideration to raise the cost of these items, there are other ways to combine these 'plough-horse' items for effective sales strategy- we'll discuss this at the design stage.
Dogs are the low selling, low profit items. When analysis finds such items, key questions should be asked such as 'Do we need these items on our menu at all?' There may be options to remove the Dog items, but perhaps these are very particular items to meet certain rarer dietary requirements that are infrequently bought yet essential to the menu.
For example, even a steakhouse should consider a few vegetarian options as having none may stop a large group from visiting if one family member or friend would be unable to eat. It could be that the vegetarian items make a low margin, but as the core target market for such a restaurant are meat-eaters, the 'dog' item here would be permissible.
After categorizing the items, it may be worth revisiting the costings before moving on to step 3. The chef will have identified how much the item should be sold for, but given the potential sales patterns we may find more effective price structures.
Consider whether 'horse' items can be raised in price, without dissuading customers. Perhaps 'puzzle' items have been overpriced, or need tweaked in some way to increase popularity.
Central to Menu Engineering, is designing intelligently. Understanding how the average person uses a menu is key. Following eye-paths, it has been found that certain areas of the menu get more attention than others. For example, the top right hand corner of menus often draws the eye first, therefore would be a good position for any items we wish to push.
Lots of tips can be followed to guide the customer towards the items we wish. To begin, the simple act of highlighting particular items tends to lead to sales increases of that particular item. Some simple highlights include: placing the items in a box; highlighting the item with color; differentiating the font size or style or even naming the item after the restaurant (i.e. 'Joe's Special' at Joe's Pizzeria).
Pricing may be at the heart of the Menu Engineer's decision making, but we don't want this to be true for the customer. Traditional menus that neatly list all prices in a column tend to encourage the customer to order based on the pricing value rather than the excitement of a dish, and therefore we should restructure pricing more subtly. Many restaurants now list the price, without the currency unit, seamlessly at the end of an item description.
Example A - Standard Menu Item.
Pepperoni Pizza - - $11.00
Double pepperoni, mozzarella and tomato sauce.
Example B - Menu Engineered Item.
Giovanni's Pepperoni Pizza
Indulgent Italian pepperoni layered over perfectly melted Galbani mozzarella cheese with Mama Giovanni's authentic sundried tomato and garlic sauce, eleven.
Above, we see two examples of how to display the same dish. The latter uses provocative descriptions to encourage a customer to try the dish, and hopefully convinces them to order the product before they have seen the price. Identifying the brand of mozzarella as 'Galbani' may encourage sales as it's a known product - much like 'Jack Daniels Whisky Sauce' may be used to make a dish more desirable to a certain target market. Finally desirability is grown by, not only naming the pizza after the restaurant (Giovanni's) but, mentioning the sauce as an authentic home recipe.
Following on from pricing, we can also use the prices to influence purchases. This is a common trick in bars regarding 'top shelf' whiskey, or in restaurants with 'boutique' wine: Price your 'best' product extra high, making your second best seem much better value. For example, a $200 bottle of wine is expensive next to $40 bottles, but when the best bottle in the house is $850, suddenly this second choice sounds very reasonable. It need not be to such an extreme scale either, having two premium burgers at $18 and $12, compared to the regular burgers at $7, will make that extra $5 for the latter premium burger seem much better value.
Section sizing can be key too. We don't want to overwhelm a customer with too much choice, and equally we may want to have enough versatility to satisfy as many people as feasible. It has been suggested to have no more than seven items per section. Referring to eye patterns and ordering trends, as a rule of thumb, the first two items of a section are given the most attention, followed by the last item. The penultimate item is often the most overlooked. Knowing this, we need to decide what we want to sell most, and reorder the menu to influence as effectively as possible.
Pairing puzzle items with horse items can be an effective strategy to increase profit, or ideally using star items to boost the puzzles. For example if a particular side is a 'puzzle', i.e. highly profitable but low sales, then pairing it with a popular main will be a quick way to drive interest.
As with all good theories, testing is fundamental to success.
With the newly 'engineered' menu, test it if you have the luxury to do so. A chain of restaurants could choose one particular branch to adopt the new menu, and after a month of orders there may be noticeable trends between how items performed due to the menu restructure. If it's a sole restaurant/venue, it is still worth analyzing the sales after a month compared to similar trade periods but be careful to factor in any potential variables that also could have affected trade.
Applying Menu Engineering to Other Business Sectors.
This thoughtful practice has been making waves in the hospitality world and increasing venue profits succinctly, but it need not be a practice purely related to F&B trading.
Taking ourselves as an example, we wanted to see if a HCD agency could adapt Menu Engineering (ME) into any of our practices.
Very regularly, we're asked to create beautiful websites - from scratch or to upgrade existing content. This seems a perfect example, as we can break down the thought process to apply ME in various ways. The first step of ME would apply to how Mäd plans our pricing structure. With 'M' shaped team members, we can streamline efficiency, rather than spreading budget between extra staff. We'll figure out the cost of a team members time, and plan accordingly for how long a project should realistically take.
For categorization (step 2 of ME), we'll look at the project and break it up into the various required tasks. A website relaunch may involve coding some tricky features, rebranding a logo, copywriting and a photoshoot for content, various graphic design work, and a training session to handover the CMS to the client. Much like ME, we can identify which of our services will be the most profitable to the business but we'd consider replacing the popularity vs profit scale. Perhaps by time vs talent or time vs profit.
A photoshoot may be included at almost zero net gain, due to the time and personnel taken to plan, source and oversee talent. Oppositely, the layout, design and coding of a website may turn out to be an extremely quick and easy job for one of our talented UI/UX experts due to the vast library of assets and software prowess at their fingertips. When categorizing the tasks, we may decide to outsource the 'dog' tasks, and perhaps even the time consuming 'horse' tasks might not require in-depth expertise. Knowing how to assign tasks effectively is key to a smooth project.
Regarding the 'Design stage' (step 3), there is simply too many variables to consider to give a full list of tips. However, the main consideration is that it is always worth taking a step back from the project to thoughtfully analyze the end goals. In the case of a website, we'd need to consider the UX: How will users navigate the website? What will expectations be? What will cause delight? What would cause frustration?
Testing (step 4) is involved throughout projects, it's simply mandatory.
If you have a menu, you can make it more effective with ME. When we apply the thought processes to other sectors, it gives us a fairly sensible structured approach to tasks. When we dissected ME, we found that we already use lots of beneficial strategies that would help such a structure: such as design sprints, MVP concepts and project management tools such as Bloo. We know the values of our skills, and price accordingly to ensure healthy business operation at an agreeable price-point to clients.
And we always test, and adapt, and grow.
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