Once a restaurant decides which food items to serve on its menu, it’s important that the menu items be monitored and evaluated on a regular basis. This helps the restaurant owner respond to changes in customer demands and to changes in food prices.
Restaurant owners typically change their menu items and prices based on gut feelings as to how profitable and popular each item is. However, there is a more accurate way to evaluate menu items to increase a restaurant’s profits while keeping customers thrilled with the selection.
This process focuses on the profitability and popularity of each menu item. It makes sense to divide the food items into categories such as appetizers, entrees, desserts, alcoholic beverages and nonalcoholic beverages. This makes sense because a menu item should only be replaced by another menu item in the same category (for example, you would only replace a poor performing appetizer with another type of appetizer, and not with a dessert).
At a minimum, menu items should be evaluated each time the menu is reprinted.
Overview of the Menu Evaluation System
The steps in evaluating menu items are:
- Calculate food costs for each food item
- Determining the sales price of each food item
- Calculate contribution margin by unit (sales price of the item minus the cost of the item)
- Multiply the contribution margin by the number of food items sold per week
- Rank menu items by:
- Profitability
- The number of food items sold during a week
- Evaluate menu items
- Adjust menu selection
When ranking menu item, the restaurant owner uses his experience and judgment to rank each item separately for profitability and popularity.
Example: JoJo’s Restaurant has six entrée items. It grades these entrée items based on profitability and popularity based on the following information:
Entrée 1 |
Entrée 2 | Entrée 3 | Entrée 4 | Entrée 5 |
Entrée 6 |
||
A |
Sales Price (Step 2) |
$18 |
$16 | $13 | $12 | $11 | $10 |
B |
Food Cost (Step 1) |
$6 |
$5 | $4 | $4 | $5 |
$5 |
C |
Contribution Margin (Step 3) |
$12 (A – B) |
$11 | $9 | $8 | $6 |
$5 |
D |
Units Sold per Week |
120
|
115 | 100 | 80 | 120 |
70 |
Total Contribution Margin (Step 4) |
$1,440 (C * D) | $1,265 | $900 | $640 | $720 |
$350 |
|
Profitability Grade (Step 5a) |
A |
A |
B |
C |
B |
D |
|
Popularity Grade (Step 5b) |
A |
A |
B |
C |
A |
C |
JoJo’s management based the profitability grades based on the following total contribution margins:
- Above $1,000 per week: A
- Between 700 & $1,000 per week: B
- Between $500 & $700 per week: C
- Under $500 per week: D
JoJo’s based the popularity grades based on the number of items sold per week as follows:
- 115 units and above: A
- 90 to 114 units: B
- 75 to 89 units: C
- Below 75 units: D
How to Evaluate Menu Items According to Profitability and Popularity Rank
Two decisions can be made very quickly. First, items that scored an A for both profitability and popularity should obviously be kept on the menu. Second, items that scored a D for both profitability and popularity should be dropped from the menu.
Popular but Unprofitable
If a menu item is popular, but unprofitable, the restaurant owner may:
- Substitute side items with lower costing side items
- Reduce the portion size to reduce cost
- Raise the price of the item
- Use lower costing food items
However, the restaurant owner must make sure that these changes will not greatly affect the popularity of the item.
Profitable but Unpopular
Here, the restaurant owner may:
- Encourage waitstaff to recommend these items to customers
- Offer specials on these items to get customers to try the items so they will purchase the items at a later date at full price
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