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Tuesday, February 09, 2010

Three Classic Menu Engineering Approaches

There are 3 classic menu engineering models taught in hotel/restaurant management courses. These models produce much different results when applied to a restaurant with a large number of entree choices.

Many people are familiar with the Star, Plowhorses, Puzzles, and Dogs approach which was developed by Kasavana and Smith. This model uses popularity as a function of gross contribution to split entrees into 4 quadrants. The popularity cutoff is 70% of the average number sold. If you sold 1,000 entrees and had 10 choices, any entree with over 70 sold is either a Star or a Plowhorse. The contribution test uses the mean. If the average contribution per plate is $12, items with higher profit would be labeled as a Star or a Puzzle (depending on popularity).

The second popular method was developed by Miller. He uses a similar popularity test but focuses on food cost % instead of gross margin. His Winners are popular menu items with a low food cost %.

Finally, Pavesic's menu engineering approach uses weighted statistics and looks at profitability as a function of food cost %. There is no 70% applied to his figures since the numbers are weighted by their overall impact on results.

I used the 3 methods to evaluate the menu at a seafood and steak dinner house with 41 entree choices. Comparing the ratings to my initial recommendations to the owner, I find myself most in sync with the Pavesic method. I tend to focus on profitability improvement through tighter food cost control. Someone employing the Pavesic method with reliable recipe cost data would come to many of the same conclusions I reached without running the statistics.

Miller rated a block of popular menu items as Winners when the Kasavana/Smith approach rating was Plowhorse and the Pavesic rating was Standard. Although I like the Miller approach for the current recession, entrees with lower gross margins may not rate a Winner class unless they achieve a low food cost % figure.

[My test data came from work I did in 2008 and the recession was mostly an autumn event in this seashore restaurant. The summer figures were in line with previous boom years and this season dominates the annual sales volume results.]

If I were advising the same operator today, the Miller approach would factor heavily in my recommendations. Since there is a ceiling on menu item prices imposed by the thrifty diners of 2010, restaurants need to rely more heavily on tight food cost control to achieve profits. I would expect to see fewer sales of high ticket menu items with high gross margins and high food cost % figures since the high selling prices which would support this profile have declined in popularity. Fewer diners are trying to impress with their choices. More diners are looking for a lower check at the end of the meal.


Noelizm said...

Nice article and analysis.

Keep it up!


Joe Dunbar said...

Thanks Noel!

Send some of that Manila heat to Virginia. We're snowed in here in Fairfax.


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