Build a better menu: Solving the profit vs. price puzzle

Build a better

menu:

Solving the profit vs. price puzzle

Build a better menu: solving the profit vs. price puzzle

The tips, tools and tech to increase your food-service profitability

Changing your menu is an exciting and sometimes fraught part of the business. But new tools and solutions — including generative AI technologies — allow food-service operators to get more and better answers, earlier in the lifecycle of menu creation, to make decisions to boost profitability.

With inflation continuing to take a larger piece of your profits, labor challenges and other pressures impacting operating costs, controlling expenses by reworking your menu to maximize profits has become more important than ever.

How do you hit the sweet spot of menu design perfection?

Nailing the perfect menu is about more than culinary creativity — though that’s important. It’s about menu engineering, a deep evaluation and optimization of your restaurant’s dishes. When done right, food-service operators can realize substantial cost savings, streamlined procurement, operational efficiencies and improved sales.

The four-steps of menu engineering

Collect data on your menu, pricing, sales and more

A periodic analysis of your menu can help mitigate rising costs by helping you understand which items are contributing the most to your business’s profitability and which items are underperforming.

The process starts with collecting data on your menu, purchasing costs and customer preferences. You’ll need answers to questions like:

What sells well, poorly and not at all?

What do my ingredients cost?

What is my profit on each dish?

What do my customers want more or less of?

The process can be detailed and time consuming, or you can take advantage of new tools that alleviate some of the busy work involved.

Tools and metrics for collecting data on menu performance

How do you decide what to keep on your menu? If you’re holding on to old standby’s without analyzing their performance, you could be losing money every time you serve that dish. Let’s take a detailed look at the steps you should be taking:

Sales-data analysis

The first step involves sales-data analysis on menu items, categorizing them as:

Stars (high profitability, high sales)

Plow horses (low profitability, high sales)

Puzzles (high profitability, low sales)

Dogs (low profitability, low sales)

By analyzing this information, you can get a quick gut-check on where you could make changes.

“Menu Engineering: A Practical Guide to Menu Analysis” by Michael L. Kasavana

Cost-of-goods-sold (COGS) analysis

The Cost of Goods Sold (COGS) analysis refers to the calculation and evaluation of the total cost associated with producing your food and beverages, including ingredients, direct labor and other costs (i.e. supplies, packaging, etc.).

This metric is a crucial KPI for foodservice businesses in helping them determine the profitability of individual menu items, guiding pricing decisions, managing inventory more efficiently, and identifying opportunities to reduce costs without compromising quality. By analyzing COGS, businesses can make informed decisions to enhance their operational efficiency, optimize their menu pricing, and improve overall profitability.

Automate your COGS work

While COGS calculations can be done manually, there are automated, AI-assisted platforms that can lighten the load for already overburdened teams. With sophisticated, recipe-first culinary operating systems, Entegra culinarians consider the cost-of-goods analysis when developing recipes and menus for clients.

“We can analyze your menu, giving you insights into your ingredient costs and how they add up to the cost of your menu item,” said Entegra Chef Kevin Sennett.

The system is updated with cost information so you know how much you’re paying for each ingredient in a recipe and how much that dish costs you to make and sell, which helps your food service profitability.

Margin analysis: making the math work

While the math is simple, the process to gather and analyze margins on every dish you serve can be long. A margin analysis requires finding the contribution margin of each item, the gap between the sales price and the total cost. More profitable items have higher contribution margins.

This is a crucial step that will let you see — without an emotional response to wanting to keep a dish — what needs to come off, what needs to be added, what’s resonating with customers and what’s not.

Customer feedback and preference data: Can you conduct a focus group? Set up an online survey? Gathering data on customer preferences and feedback can provide insights into the popularity of your menu items. According to Chef Kevin, “getting customer feedback is nice when you can tap into it, but let the sales do the talking.”

“Recently, we had a midsize, multi-unit restaurant client reach out to help them transform their menu,” said Chef Kevin. “They wanted to appeal to a different demographic than they were currently attracting. So, we’re working with them on a complete reimagining of what they’re serving, how they’re pricing it and how the menu is designed.”

Step 2: Assess your menu

Once you do your analysis, it’s time to sharpen your knife. This phase is about keeping your stars, ditching your dogs and experimenting with underperforming items. When doing your menu item performance analysis, the biggest area of opportunity is with the plow horses, the high-profit, low-sales dishes.

The plow horse problem

How can you make plow horses more profitable? Consider:

Making portion sizes smaller

Write more appealing menu descriptions

Substituting ingredients

Ingredient substitutions: what’s working now

Entegra’s Head of Culinary, Chef John Csukor, advises clients on ways to make their menus more profitable. Using beef burgers as an example, Chef John recommends cost-saving substitutions, like:

Swapping beef with lower-cost chicken or pork and mixing proteins. For example, consider a Hawaiian Luau burger that includes 75% turkey, and 25% pork mix.

Focusing the menu description on the nutritional value of substitutions like turkey, which is leaner and can appeal to customers.

Making burgers with a mix of mushrooms instead of 100% meat.

Serving sliders instead of a bigger burger.

The dogs: Can these be saved?

Generally, our advice is to remove low-profit, low-sales items to boost your margins. But you may need to keep a loss leader in the menu that has shown an ability to draw customers into your business to spend more.

Solving the puzzles: Strategies for keeping high-profit, low-sales items

How can you sell more menu puzzles, those high profit low sales items? These high-profit, low-sales dishes deserve more time to shine. With creative positioning and improved descriptions, you can move the needle on sales.

Let the stars shine

Your stars should get top billing: prominent placement on the menu, high-quality photography and a mouth-watering description.

“Product cuttings are a great way to look at and mitigate costs in your business. Now may be the time to look at a new, comparable ingredient that may be of better quality at a lower price point because you’re getting it through an Entegra contract.”

Chef John Csukor

Bringing down food costs with SKU rationalization

The process of examining inventory and deciding which products are redundant, off-contract, too expensive or underutilized is called SKU rationalization. By more tightly controlling purchasing, many operators can bring down the cost of making dishes, moving some of their plow horses to stars.

With fewer ingredients, foodservice staff can focus on increasing the overall quality of the business’ core offerings.

Step 3: Price your dishes right

A thoughtful examination of pricing can help you turn a profit.

With food costs rising, you may need to pass along some of those added expenses. “If prices of some ingredients are consistently high, then it may be time to increase prices,” said Chef Kevin. He advises never to make a major price hike. “Instead, customers may be more receptive to paying more around the holidays. They may feel more generous, making that a good time to make incremental price increases.”

Within the Entegra PurchasingIQ client platform, you can use Savings Optimizer, a tool that gives you one-click access to tracking food purchases as well as seeing opportunities for similar — and potentially lower cost — contracted items.

Another way to save: the Entegra Shopping Assistant

Food costs fluctuate and your menu prices need to reflect that. If your food costs grow while your menu price stays the same, your gross profit margin shrinks and you make less money on each sale.

The Entegra Shopping Assistant is an AI-powered browser extension for use on a national distributor’s e-store. As your procurement team is placing orders, the shopping assistant pops up an alert on non-contracted items if someone attempts to buy off contract.

Additionally, when one item is unavailable, the shopping assistant shows possible contracted substitutions, giving your teams options that are comparably priced.

Step 4: Redesign your menu

The final step of the menu engineering process is to synthesize your learnings and decisions from the previous steps and use that knowledge to create an appealing menu to showcase your culinary creations.

According to research from Cornell University, menu items sell 27% more if

they’re given a great menu description.

The psychology of menu design

Place items strategically:

Place your stars, your most profitable dishes in the ‘sweet spot’ of the menu, the top right corner where the eye naturally goes first.

Highlight key dishes:

Draw attention with special boxes or highlights to subtly guide the diner’s choices.

Layout your menu:

Organize your layout into groups that are logical and emphasize profitable dishes.

Use Images:

Include appetizing images of high-profit dishes to attract more orders.

Deemphasize prices:

Don’t include dollar signs or draw lines to connect the dish to its cost. This can make the cost seem less daunting, encouraging higher spending.

Price right:

Slightly lower prices (e.g., $14.95 instead of $15) can create a perception of value, nudging customers towards these choices.

Write descriptions that pop: Using evocative, descriptive language can make dishes sound more appealing. Words like “hand-crafted,” “wood-fired,” or “sundrenched” add a sensory dimension.

“Descriptions that paint a picture, that make your dish sound special, work like magic. Are you using a premium vodka in a cocktail? Calling that out can spike sales.”

Chef Kevin Sennett

Full-service culinary solutions: The Entegra Performance Kitchen

How do you pull off menu engineering while running your business? The Entegra Performance Kitchen is a full-service culinary agency and test kitchen, providing food-service operators with a hub of culinary inspiration and innovation. The culinary team tests new food and equipment, as well as hosts group menu ideation sessions, focus groups and more.

Entegra’s culinary consultants are experts in kitchen management and procurement in food services, ready to help you reduce food waste and overcome supply chain and inflation challenges. They can support you with comprehensive culinary services at every stage of the menu engineering process.

Maintaining profitability and competitiveness in the marketplace

Menu engineering is a continuous cycle of optimizing your menu to improve your overall business performance. Your menu may need a little fine-tuning or a full-scale redo, Entegra can be your partner to help you achieve your goals. We’re more than a GPO that saves you money on your purchases. We improve your business performance by taking a holistic look at your operations and providing you with thought leadership and resources to enhance efficiency across all aspects of your operations.

Ready to get started on your menu?

Speak to Entegra’s experts or visit our website to learn how to put our culinary services to work in your kitchen.

www.EntegraPS.com/contactus