Use the five R’s to increase menu profitability

By Rick Braa, CHAE      

Q: This time of year we evaluate our menu for changes. In the past, we’ve done this on emotion rather than data. Where should we start our analysis?

A: Menus are the secret love affair of restaurant owners. They often reflect the founder’s aspirations and ideas of what is missing in the market. Evaluating the menu several times per year creates good habits that keep the brand fresh. Tracking what sells and, just as importantly, what doesn’t sell is a weekly task to identify trends and assist in adjusting the menu. The top 20 percent of items sold typically represent 70 to 80 percent of sales. Every item deserves a stringent analysis of whether it belongs on the menu. If analytical behavior is slack or absent the number of menu items will increase, creating opportunity for performance issues. It’s natural to retain items because a vocal guest may be upset if it disappears from the menu, but facts are facts; if it doesn’t sell, take it off. Smaller menus are easier to train, use fewer ingredients, make problem solving easier, increase table turns by reducing the time spent with the menu and, if engineered correctly, maximize margin.

Evaluate your menu by day part, category and overall. There may be things that move at lunch rather than dinner and vice versa. Start by computing the gross margin on each item and the number sold since the last menu adjustment. Once each item has been computed by total gross margin a map occurs visually on how profitably your menu lays out. Each item will fall into a category such as high or low volume, above or below average margin. Use four R’s to determine which items should stay, which ones need work and which ones need to go.

Retain high volume, above average margin items. These items carry the profitability of the menu. They tend to define the brand and create an opportunity on the upside to increase pricing. High volume, above average margin items are least resistant to price increases. They should be adjusted with every menu change. Since best sellers are most frequently purchased, ensure execution is perfect every time they come out of the kitchen since the restaurant will be judged highly, based on the number of purchases. Remember to reward these items with great menu placement. The top sellers in any list tend to be the top and bottom item. Make sure stars shine on the menu.

Reprice high volume, below margin items. The number sold is high, indicating demand and guest satisfaction, creating a pricing opportunity. Since the margin is lower move these items above the average margin line with price increases. Evaluate the accompaniments and portion to potentially reduce cost if prices can’t be adjusted.

Replate or reprice low volume, above margin items. This is where the hard work comes in. These may be great items that for some reason don’t sell well. Perhaps guest or crew perception sees these items as lacking value, not reflecting the brand well or simply not interesting. By replating with higher perceived value accompaniments, guests may be persuaded to select these items. Examine pricing as well; it could be the guest isn’t associating pricing with value. A price decrease may be in order.

Rethink low volume, low margin items. Emotion is tricky. These items may have been on the menu since inception or may even have a little following. The crew probably likes them and so do you. The problem is that they don’t sell. Remove these items or reinvent them. Move them to a specials sheet on occasion to capture the demand all at once rather than keep them on the menu. Make it a habit to think of how small you can make your menu and create room for new items more on trend.

If a menu has 50 items, the top 10 items will make up 70 to 80 percent of sales, proving that plenty of items are not selling proportionately to effort. The challenge is to shrink your menu 20 percent by cutting the bottom items and not adding back. Use the specials sheet to create interest for testing and demand items, but keep them off the menu. Reduce the overall size of the menu and keep it fresh with new, replacement items, and you’ll see profitability increase.

For a more information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.

(Source: Washington Restaurant Magazine, May 2015)

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