Instructions: The purpose of this exercise is fourfold:

Step 1. To learn basic menu engineering principles.

Step 3. To use a spreadsheet program in generating two menu engineering reports.

Step 4. To evaluate the information found in the menu engineering reports using the menu engineering strategy model presented in this exercise. This will be accomplished by answering 9 questions found at the end of this document. Please e-mail the two engineering reports (Excel attachment) and answers to Galen.Collins@nau.edu.

Definition. Menu engineering is a concept developed at Michigan State to help food service professionals track variables, which influences a menus' profitability.

Important questions. Can we influence the customers' decisions towards menu items that generate more profit? It is important to remember that the menu is the primary marketing tool where items compete with one another - some offer more profit, others offer higher sales, others offer both and some neither.

Tool. This is a key tool that a college graduate should have in their tool chest. Because it enables you to evaluate why certain menu items do better than others - is it visibility, a poor sales program, food presentation, etc. It is a tool that provides you with the necessary information to make decisions about menu items to improve the overall profitability of the menu.

Individual merits. However, it also important to judge each item on its individual merits. We look at two basic attributes:

1. Menu item popularity or demand.

2. Menu item contribution margin or profitability.

How do you compute menu item popularity and contribution margin?

1. Contribution Margin= Menu price - food cost. If a menu item's contribution margin is greater than the average contribution margin for the entire menu, it receives a rating of "H" indicating that it has an above average contribution margin.

Example - Sum of CMs = \$30 # of items on menu = 10 Avg. CM= 30/10 = \$3

2. Demand = Number of items sold of a particular menu item/total number of menu items sold. If a menu item's percentage of sales is greater than the average sales percentage for the entire menu, it receives a rating of "H" indicating that particular item has a higher sales percentage than the demand mix.

Example - If there are 10 items on the menu, the demand mix would equal 1/10 X .70= .7 or 7%.

Any menu item with a sales percentage equal to or greater than 7% would receive a rating of "H."

Any item with a sales percentage less than 7% would receive a rating of "L."

Menu Classification System. All menu items can be classified into four types:

1. Stars or Gold = HH. (Items which are both profitable and popular)

2. Plow Horses or Silver = HL (Items which are high in popularity but low in profit)

3. Puzzles or Bronze = LH (Items are low in popularity but high in profit)

4. Dogs or DQ = LL (Items are both low in popularity and profit)

In the menu engineering reports you will classify each competing menu item against two benchmarks: Contribution Margin and Menu Mix (or percentage of sales). Each item is classified as "High" or "Low" using the rating scale denoted above.

Gold/Stars - These are premier items of the menu. They are relatively popular and generate above average profits per sale. Some strategies to follow to enhance their profit potential:

1. Maintain rigid specifications. Special attention should be given to these items to ensure they are of the highest quality.

2. Give high menu visibility. The menu can be a great sales tool. Customers tend to order items which "stand out". Make sure your gold items present themselves well on the menu.

3. Test for price elasticity. Be proud of gold items. If the customer is willing to pay more without affecting your total demand, logic says, increase the price.

4. Push a "sales" program. Have the wait staff suggest these items when asked by customers.

Silver/Plowhorse - These items trudge along doing a great deal of work (sales) while actually doing very little (making profits). They reflect good volume sales, but generate little profit compared to the gold items. A silver item is a good candidate for inventory control. Some strategies to follow:

1. Don't offer as a special. If a silver item does not exceed the average contribution margin, why offer it as a special? Instead, turn the demand to high profit items (e.g., gold and bronze).

2. Maintain low menu visibility. Try to hide these items on the menu.

3. Reduce portion sizes slightly. This will reduce food cost, and in turn help to increase contribution margin. This can sometimes turn silver into gold.

4. Find alternative ingredients. See if less expensive ingredients can be utilized without sacrificing quality and consistency.

5. Test for price elasticity. Will raising the price significantly reduce demand?

Bronze/Puzzles - These are the most misunderstood items on the menu. They manage to make above average contribution margin, but are weak in demand. The issues that arise are twofold: why aren't they selling well and how can we increase demand without sacrificing the high profitability? Some strategies to follow:

1. Offer as daily specials. A quick and easy way to attract consumer attention and increase demand is to offer an item as a "Special."

2. Give the item high menu visibility. Make it "stand out" on the menu.

3. Reduce the price. The item may be overpriced. Test for price elasticity.

4. Drop from the menu. Especially if it has a poor shelf life, or it is difficult to prepare.

DQ/Dogs - These items are the poorest performers of the menu and may often be dropped from the menu entirely (e.g., disqualified). Some strategies to follow:

1. Drop from the menu. These items may be nothing more than dead space on the menu, and thus serve no purpose. By dropping them you can free space, reduce clutter, and concentrate on more profit bearing items. This also may reduce inventory.

2. Rename and describe to make more attractive. A catchy name and description may be all it takes to increase demand and turn a DQ into a silver or gold.

Complete Menu Engineering Reports - Step 3

 Menu Item # Sold Sales% Item Cost Selling Price Item CM DM Class CM Class Item Rank Baked Snapper 100 5.00 4.06 14.50 10.44 Blackened Chicken 200 10.00 3.98 12.98 9.00 Chicken Kiev 150 7.50 2.98 14.50 11.52 Crabmeat Chateuabriand 400 20.00 11.20 29.90 18.70 Famous Catfish Dinner 500 25.00 2.59 12.50 9.91 Prime Rib 100 5.00 4.98 13.50 8.52 Sirloin Strip 300 15.00 3.67 14.95 11.28 Southwestern Chicken 250 12.50 1.74 7.25 5.51

P & L REPORT

 Entree Quantity Sold Total Item Costs Total Item Revenues Total Contribution Margin Baked Snapper Blackened Chicken Chicken Kiev Crabmeat Chateuabriand Famous Catfish Dinner Prime Rib Sirloin Strip Southwestern Chicken Total

1. What is the total contribution of the menu?_________________________(Look at P & L report)

2. What item generates the highest contribution margin in terms of gross dollars?___________(Look at P & L report)

3. How would you characterize the price elasticity for Southwestern Chicken?_________

Crabmeat Chateubriand?_________________ (Look at Menu Engineering report)

4. What are the weakest menu items?_______________________ (Look at Menu Engineering report)

5. What specific menu items would it make sense to offer as a daily special?__________________ (Look at Menu Engineering report)

7. What specific menu items could be possibly renamed to transform them into silver or gold?

_____________________________ (Look at Menu Engineering report)

8. What specific menu items may be overpriced? ___________________________ (Look at Menu Engineering report)

9. Why would it make sense to possibly hide the blackened chicken menu item?_____________