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Thursday, November 20, 2008

Menu Engineering Basics

Dear Sir
I need To know the classification of items in menu engineering (like cash cow)
but I don't know the others. Please send me the others and the explanations.

Cost Controller (major 4 star hotel)


Thanks for the question!

The four quadrants of the traditional Boston Consulting Group's Growth-Share Matrix are Stars, Cash Cows, Question Marks and Dogs. Our industry's Menu Engineering categories are Stars, Plowhorses, Puzzles and Dogs. Pretty similar names but much different analysis. The menu engineering model is constructed from POS data and standard recipe costs.

Two pieces of information are required to construct the curve. For a given period of time, you need to know the sales count for each entree. In addition, you need to know each item's gross margin (selling price less the standard recipe cost).

I just happen to be in Michigan today. The menu engineering concept was developed at Michigan State University. Dr. Kasavana's model puts the highest weight on menu popularity. Popular menu items will be either Stars or Plowhorses (depending on their gross margin). Unpopular menu items will be either Puzzles or Dogs.

The graph approach to the menu engineering model is excellent for strategic planning exercises. The y-axis shows relative popularity and the x-axis relative profitability. The reason I prefer the graph method for decision support is because there are Plowhorses close to becoming Stars and Puzzles which are Dogs in disguise.



If you find a Plowhorse near the y-axis, a small increase in the selling price or a small decrease in the standard recipe cost could help create the next Star. On the other hand, a Puzzle far below the x-axis is unlikely to achieve popularity even if the selling price is slashed. Your customers are drawn to your restaurant by your Stars and Plowhorses. These items deserve your attention.

There is a tendency to focus on problems. Rather than trying to fix these unpopular items, you should work hard to make more profit with logical accompaniments to your Stars.

8 comments:

Anonymous said...

Can you show a sample analysis and how the graph lays out?

Joe Dunbar said...

A great start would be a simple scatter plot for all your entrees. Make the X-axis the gross margin and the Y-axis the number sold. Many operators who use menu engineering run the numbers quarterly.

Excel can plot the data for you if you have three columns: Menu Item, Gross and Sold. The dogs will be the items way down on the bottom. You'll find the stars up high. You will also see clusters around popular gross margin points.

To truly pinpoint customer preferences, I like to run a second graph using selling price as the X-axis instead of gross margin.

The classic Menu Engineering plot involves a % of average popularity. The formula is more complex and provides you with the the horizontal line to separate the popular from the unpopular.

A second formula provides the vertical line for separating plowhorses from stars. With the current grain market volatility, your analysis requires some guesswork since inflation is uncertain.

Anonymous said...

can you obvious how to take action according to the result of each item in
the different four category.
like what do we make to enhance an item at puzzles category.

Joe Dunbar said...

Stars: less price elastic; you can prudently raise selling prices during most economic conditions (today may be an exception).
Plow horses: popular items with a lower gross margin; can we make the item a star? do we want to try to make the item a star?
Puzzles: make sure this isn't an unpopular item at any price point; lower the price slightly and if it doesn't improve in popularity consider it a dog.
Dogs: consider elimination ASAP.

Anonymous said...

Dear Mr. Dunbar,
I have found your info very useful. Would you provide me with the formula for % of average popularity?
I would greatly appreciate it.
Best regards,
CT

Joe Dunbar said...

Thanks for the question CT!

Take the reciprocal of your number of entrees. If you have 10 entrees, the average popularity is 10%.

Joe Dunbar said...

CT,

In the menu engineering book, they use 70% of the actual average to arrive at the MM popularity rate. In our 10 item example, this would be (70% x 10%) or 7%. The graphic approach uses this as the popularity break point (y-axis).

Joe

Chazz said...

Thank you very much Mr. Dunbar. I noticed the 70% used in the book, but couldn´t find out where it came from.

Best regards!

Restaurant Data Pros

 
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