Designing Intelligent Menus to Increase Restaurant Profitability

Image Credit: Chad McDermott

The daily tasks of operating a food retail business or restaurant can be daunting, even for the most efficient multi-taskers. Too often, startups and legacy operators find  themselves caught up in what’s happening in the moment, rather than focusing on strategic business decisions to optimize profitability.

One of the biggest mistakes I continue to see is restaurants not thinking strategically about menu model and brand alignment. The menu is the face of any food business, whether your customers are looking at it on mobile phone, standing at a counter or sitting at a table.

As someone who’s seen this business from all sides, here are some simple ways to optimize your menu for profitability.

Basic Menu Engineering (Mix/Profit Margin)

The menu is the single most profitable piece of your business. Have you really thought carefully what’s on it? I find too many owners and chefs putting items on their menu for self indulgent and non-analytical reasons. This cannot be a gut decision.

• Trim it down – It’s likely that 20 to 35 percent of your menu may not even need to be there – items that are losing you money, are not in alignment with your brand and are costing you extra to inventory the ingredients. How do you determine which items to get rid of? Welcome to the science and art of menu engineering, and keep reading.

• Menu Mix – It’s crucial to rank the popularity of your menu items, also referred to as guest demand or “menu mix,” so you can evaluate the profitability of each item and how it contributes to your overall menu. Dial in on what items are the ‘cash cows’, ‘work horses’, ‘space fillers’ and ‘duds.’ In my day job, I work with people whose sole purpose is to measure how items perform within a menu system and how they impact categories of items and overall business performance. I can’t stress how important it is for you to understand your menu mix.

• Understanding profit – Take a REALLY GOOD LOOK at your menu mix. When you’re doing reviewing it, look at it again. Ultimately the ‘cash cow’ stars should be left alone—they’re already performing well and contributing. The ‘duds’ need to be addressed immediately, and you need to figure out if you can you increase the profitability of these deadbeat dishes by increasing their price or decreasing their cost. Don’t spend the majority of your time on these items, but do understand that all menus have ‘duds’ and that they serve a purpose. You just don’t want to be losing money on them. Confront the cost vs. profitability, and make decisions accordingly.

Menu Engineering (Design)

How your menu is designed can ultimately be just as important as what is on it. People spend an average of 109 seconds looking at a menu, according to a Gallup poll. So that’s all the time you have for them to choose options on it that make you money.

• Design your menu professionally – A carefully crafted menu design will definitely pay off in the end. Pay careful attention to what your menu looks like and how the items themselves are organized and presented. The menu should be an extension of your brand and everything should be consistently represented.

• Order and category arrangement– You need to understand how your guests look at and take-in your menu. The longer it takes a customer to make a decision about their selection, the more opportunity they have to deviate from the choices you want them to make. Use the short attention span of most guests reading a menu to your advantage and present your items in a legible format that’s not too crowded an isn’t over designed. It’s actually a pretty simple model. If you order your menu items vertically, be sure the ones that are most profitable are listed first and descend accordingly. That’s right, it’s as simple as that. Studies have show that items in this arrangement sell the most, while the in-between items can be overlooked and passed by. You can also direct customers’ attention to a specific part of your menu using “eye magnets.” Shading or graphics make your offerings, especially your high profitability items, stand out. This works for any format (dine-in, take-out, or wall mounted menus)

Menu Engineering (Pricing)

• Thinking analytically – Menu prices are the backbone of your sales, so set them carefully while considering a number of different factors. Pricing is perception, so it should be done carefully thought out your menu. When calculating the right menu price, take raw ingredient cost, competitor pricing, actual quality, portion size and labor into account. Ultimately, your prices need to be competitive and resonate with your demographic of customers. If customers don’t feel that what you serve is worth the menu price, they won’t be coming back – that’s for sure. You need to look at ways to assess gross profit on your individual offerings and determine how each item contributes to your menu as a whole.

• Taking price– Increasing menu prices must be done strategically and carefully. Across-the-board price increases can lower a guests perceived value and ultimately reduce customer counts. Remember this, there are several ways to achieve greater profitability without increasing price, including surgical (strategic) pricing, menu item placement, product line elimination, product line extensions, promotion and sales staff training. Make sure to weigh all these options prior to going with price. From my experience, most restaurants do not change their menus enough because they feel they can’t afford to. When they are finally forced to increase prices, it usually ends up being an across-the-board price hike, which tends to work against your customers.

By following some of these simple steps, you can put your business in a strategic alignment and focus on driving profitability.