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Monday, November 27, 2006

Constructing The Value Menu

Back in 1992, New York City hosted the Democratic Party Convention. Many of the restaurants offered a special menu for $19.92 to the conventioneers. I worked with several chefs to create profitable menus given the $19.92 constraint. This exercise helped these chefs to continue offering full meal options well after the convention ended.

The best place to begin a value menu is with your most popular entrees. Any menu revision impacts the popular items more than the less popular choices. Rather than taking guests in a different entree direction, allow them to enjoy a more complete meal.

Every operator should know the profile of menu choices per cover. This profile includes the percentage of covers choosing a starter, entree, dessert and coffee course. If you enjoy a large percentage on starters and desserts, you may wish to avoid offering the table d'hote option.

Most table d'hote menu authors include a dessert and coffee course. The dessert options include 2 or 3 low cost items. These items are frequently offered at cost - 100% - to the guest. It's important to properly cost the dessert and coffee course.

The entree course often includes a slightly smaller portion size for the center of the plate choice. Since the diner will have a starter course, the smaller entree portion size will suffice. Try to develop a starter course with a cost equal to the savings on the center of the plate portion.

For example, a well trimmed filet mignon steak may cost $1.00 to $1.50 per ounce. If you reduce the portion from 8 ounces to 6 ounces, you'll have $2.00 to $3.00 with which to create the starter course.

Include the same vegetable, starch and bread courses as the base menu.

To cost the table d'hote meal you'll start with the entree price on the menu. To this number, add the price of the lowest starter course on your menu. Finally, add the cost of the dessert and coffee option (try to keep below $2).

If you charge $25 for the entree and your low cost starter is $5, the table d'hote may be offered for $32. The additional 28% rise in revenue over the entree will produce a very good food cost percentage. The cost of the starter is covered by the decrease in entree size. We have included enough revenue to cover the cost of the dessert and coffee.

You're a winner if the overall check average increases. Track this statistic by day of the week to fine tune the table d'hote strategy.

Monday, November 20, 2006

Value Added Meals

In lieu of cutting menu item prices, many companies decide to bundle several popular menu items into a value meal. When I lived in Montreal, we often ordered the table d'hote option at dinner restaurants. These prix fixe dinners typically included a soup or appetizer, an entree with vegetables, dessert and coffee. If ordered separately, the total price of these menu items would be higher than the house's suggested meal.

Customers may actually spend more money on the table d'hote option. Most people do not order four or five courses during their restaurant visits. By enticing these customers to order a full dinner at the reduced price, the savvy manager may exert an upward pressure on the check average.

If you can change the dynamic and increase customer spending through a perceived value meal, higher revenue and increased cost control may be the result. Prix fixe options are typically limited. Restaurant managers select the table d'hote options carefully each day.

In addition to attracting more dollars from current clientele, new customers may try your restaurant.

The QSR segment offers both value meals and value menus. Value menu boards are loaded with many low cost selections which may be combined to create a meal. Their value meals are constructed around a larger beverage and an extra item (usually fries). Value meals have a set price. The value menu board options may be ordered in any number the customer desires.

I like their value meal strategy far more than the value menu boards. You can work hard to construct attractive and profitable table d'hote meal options. Your check average and food cost will be more predictable and stable.

Monday, November 06, 2006

Cost Benefit Analysis

Every business decision has a cost associated with the execution. If the strategy was sound, the benefit derived from the action will exceed the cost incurred executing the tasks. Cost benefit analysis involves the study of results in relationship to the cost of the activity.

The absolute rule (applicable in all cases) is the cost of information may not exceed the expected gain. Any decision which will produce a benefit less than the cost to make the decision, execute the strategy and monitor results is a waste of time. Most decision makers try to filter out the minutiae in order to focus their attention on high impact activities.

As you start any campaign to improve profits through improved food cost control, it is imperative to discover areas which will have the greatest impact for the time and resources required. Try to locate activities which are performed over and over again. Isolate activities which are not consistently performed and activities which have a major impact on the client experience.

A second rule is to avoid destructive cost cutting activities. For example, you may discover the most popular menu item has been chronically over-portioned by the production staff. It would be quite dangerous to dramatically cut the portion size back to the standard in this case. Customers have come to expect the bigger portion and will immediately notice severe reductions. It is wiser to acknowledge the true portion size and develop a less obvious strategy to deal with the issue.

Opportunity cost looks at both missed opportunities and the risks avoided. You have some extra capital to put in play. Do you use it as a down payment on a new location? Would a new advance in POS technology offer a big opportunity? Would an advertising campaign bring more covers to existing locations? These decisions all involve risks and they also involve opportunity costs.

If you do nothing, the money goes into a bank account and earns 2 to 5% interest. This simple activity produces a key decision variable - the risk free value of money. All decisions should be weighed against this risk free return.

Every decision you make needs to be one you are authorized to complete. The organization does not need the wait staff fretting over the selection of a vendor for a new phone system. If you stick to your area of control, you'll have a better chance to make great decisions. If you begin to look at your operation through the CBA lens, you will begin to overlook insignificant issues and focus on real problems and opportunities.

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