[00:00:00] Tell me if this sounds familiar. You're looking at your food costs and they're all over the place. Yeah, some dishes are making you money, but you know that others are bleeding you dry. And honestly, you have no idea which is which. You keep selling that pasta dish because you know customers love it. But then every time you sell one, you know you're basically paying them to eat at your restaurant. Does that sound familiar? Today we're going to talk about menu engineering. And I promise you I didn't make this up. This has been around for, I don't know, 50 some years, but is this. But this isn't some fancy consultant nonsense. This is real actionable stuff. Insights that can add as much as 5 points to your bottom line in as little as 30 days. All of that on today's episode of Restaurant Strategy.
[00:00:42] There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's foreign.
[00:01:13] Hey everyone, thanks for tuning in. My name is Chip Close. This is the Restaurant Strategy podcast. We do two episodes every single week. All meant to help you level up, helping you build a more profitable and sustainable business. Now, you know I write books, I give talks, I host this podcast, obviously, but I also run a group coaching program called the P3 mastermind. We have an incredible community. More than 150 people currently enrolled in the program, spread across four different groups. Over 300 people have already gone through the program. The bottom line is the program works. If you struggle with profitability, I can show you a way to make more money from your restaurant. The best way to get started is to just have a conversation that's absolutely free. We take 30 minutes and just get to know each other. Go to restaurantstrategypodcast.com schedule again, absolutely free. Restaurantstrategypodcast.com schedule and yes, that link is in the show notes now. Are you tired of juggling schedules, tracking hours, worrying about HR compliance and dealing with all those last minute no shows? Well, it's time to say goodbye to the headaches and hello to Time Forge. Time Forge is a labor management solution designed for the fast paced world of restaurants with product offerings ranging from recruitment to to retention of your team members. With Time Forge, you can simplify employee scheduling. With automated AI schedules based on sales, weather and other events, you can track attendance and labor costs in real time. Keeping up with complex labor laws like fair work Week and meal penalties. You can recruit staff who live near your stores from our more than 11 million hourly job seekers. They have 11 million plus job seekers on their platform.
[00:02:53] You can pay employees their wages and tips on a daily basis after every shift. And you can communicate proactively with your staff using messaging, surveys and more. And that's not all. Time Forge integrates seamlessly with most POS systems, giving you full visibility into labor and sales performance and suggesting when you should staff up or staff down. Whether you manage one location or dozens, Time Forge saves you money, time and stress so you can focus on what really matters, delivering exceptional service and growing your business. Thousands of restaurants trust Time Forge, so why not you visit time forge.com restaurantstrategy today and see how Time Forge can help your team and your restaurant run like clockwork again. Timeforged.com RestaurantStrategy as always, that link is in the show notes.
[00:03:44] So let's talk about menu engineering. It's a topic that's been around for a while. I have covered it on past episodes, but we haven't talked about it in a while. In order to dive in, I want to first start with a story that happened just a couple of months ago. So I'm working with a P3 member, let's call him Tony. He runs an Italian joint just outside of Chicago out in the suburbs, right? So Tony calls me up, he's frustrated. He says, look, chip, I'm doing 40k a week in sales. That's $160,000 thousand dollars a month and I'm barely breaking even. Which of course I knew at the time he had just joined the program. We had just gone through. What we do is a hot seat in the beginning where we review the P and L and we could see. And he said, you know, we saw on that P and L, my food costs are 34%. And you said, they gotta be sub 30, close to 28. I want to do that, but I don't know how to do it because I can't figure out why they're so high. So I said, we will get there. That's what the program is all about. But I said, you gotta answer this one question. It's a question I ask everyone. Tony, what's your best selling entree? Easy. He says, chicken parm. We sell like 500 of them every single month. I said, great, and what's your food cost on that dish? And there was a long pause. I, I don't know.
[00:04:58] And there, that's the problem right there. See, Tony's making Decisions based on history, based on gut, based on popularity, but not necessarily based on profitability.
[00:05:09] See, he's letting his customers choose what makes him money or what doesn't make him money. Menu engineering is really simple when you break it down. It's really about understanding two things. Number one, the profitability of an item. And number two, the popularity of an item. Right? So how much it costs to make a dish and how many dishes of those go out every month? That's it. Profitability and popularity. Food cost and popularity, right? Who. Who orders what? When you plot those two things on a grid, you get four categories of menu items. So I want you to go back to high school, right? Remember a matrix, a graph. Picture a graph in your head, right? So there's an x axis and a Y axis. The X axis, right, measures the popularity of the items. So the X axis is the horizontal line. More popular items on the right, less popular items on the left. The Y axis, meaning the vertical, the up and down, measures the profitability. So the more profitable items up top, the less profitable items down below, right? So now what you do is when you create these two lines, you get four quadrants, bottom left, low margin, low popularity. We call these dogs, right? They're not popular, they're not profitable. In all honesty, we wonder, why the hell are they even on the menu? The opposite is top right.
[00:06:34] High profit, high popularity. We call these stars, bottom right, high food cost, but very popular. Right? So not very profitable, but very popular. These are what we call puzzles, right? So they're not very profitable. Again, but, boy, do we sell a ton of them. We think to ourselves, man, if only we could squeeze a few more dollars out of every single one, life would be good.
[00:06:58] And then top left, these are very profitable items, but not very popular, right? So every time somebody orders them, you make a lot of money on them, but they just don't get ordered very much. These are called plow horses. I didn't make up these names. The dogs, the stars, the puzzles, and the plow horses. This thing has been around for, like, 50 years. But what happens is we should be able to look at your pmix, your product mix, and then look at your recipe cards, and we should be able to plot every one of your dishes onto a grid like this. Looking at the data visually, right, always helps me, and I think it will help you to see what's actually going on here in the restaurant. And of course, the next natural question is, once I look at that and I see what's going on, well, then what the Hell do I do? We're going to talk about that after a word from another one of our sponsors.
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[00:09:35] Okay, so we're talking today about menu engineering. We've plotted an X axis which measures the popularity of the dish, and the Y axis that measures the profitability of the items. Right. Now, here's where it gets interesting. Most restaurant owners think the plow horses are great, you know, because they make a lot of money or they like the puzzles because they sell a ton of them. But popularity without profitability, or vice versa. Profitability without popularity will kill your business. I learned this the hard way working with restaurants for 25 years. It was like banging my head against the wall working with some owners right now. Back to Tony, his chicken parm it was a puzzle. 38% food cost, right? So they were getting crushed every time they ordered it. But again, they sold like 500 of them a month. So super popular. Again, every time someone ordered it, he was basically losing money because when you add on the labor contribution and the fixed cost contribution, he's in the red. But because it was his signature dish, what did he do? He kept promoting it. So here is what we did. First, we calculated the actual food cost on every single item on that menu, not just the chicken parm, right? And we didn't just look at the protein. We looked at everything. So in the case of the chicken parm, we looked at the chicken, the sauce, the pasta, the cheese, even the garnish. That little lemon wedge that came on the side, Every single ingredient portioned out exactly as the kitchen makes it. Tony's chicken parm was costing him about $11.40 to make, and he was selling it for about $29. That is roughly a 38% food cost. Way too high for a casual dining restaurant. He realized that when we showed him. So now when we look at this, we've got three options. It's a puzzle, right? So option one, we raise the price, right? Meaning since we're selling so many of them, let's make sure we're making more from them. Option two, we lower the food cost. Option three, re engineer the dish entirely. So on this, we actually went with option two. We looked at every component. Chicken breast was eight ounces. We cut it to six ounces. What we did is pounded it a little thinner. Customers couldn't tell the difference. The portion of pasta was massive. We cut that by 25% and added more vegetables. The sauce was made with San Marzano tomatoes. We switched to a high quality domestic Tomato that cost 40% less.
[00:11:55] One by one, we shaved costs without impacting the customer experience. Final result, food costs dropped from 38 to 26. Same dish, same price. But because we played with the portion size, it was 12 points. Better margin. But here's the key. We didn't stop there. We actually looked at all of Tony's stars, meaning the dishes that were very popular, very profitable. He had this simple grilled salmon dish that cost 850 to make. Sold for 34 bucks. It was like a 24% food cost, and it was his third most popular entree. So what do we do? Man, we promoted the hell out of that thing. We moved it to the top right corner of the menu. That's where your eye goes first, right?
[00:12:37] Top left, top right. So Top right was where we could really get attention. We even added then a little icon next to it that says chef's favorite. We trained the servers to suggest it as an alternative when people ordered higher cost dishes. Within two months, salmon sales increased by 60%. Tony's overall food cost dropped from 34 to 28 where I wanted it. That's six points that went straight to the bottom line. So on those $40,000 in weekly sales, that was an extra $2,400 every single week. You do the math, that was over $8,000 in more profit. Profit that dropped all the way to the bottom line.
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[email protected] RestaurantStrategy. I will add in here. This fits in perfectly with what we're about to talk about. Again, davosalestax.com restaurantstrategy and yes, that link is in the show notes.
[00:14:24] Now let's talk for a minute about the psychology piece of this, because this is where a lot of people mess up. You can't just randomly move stuff around on the menu and hope for the best. There's a science to menu engineering, right? It's behind how people read menus and how they make decisions, right? First, you gotta understand, I've talked about this before, but people scan menus in a Z pattern. So when we read a book, we read left to right, top to bottom. That's not how the I goes. We scan a menu in a Z pattern. We start at the top left, we move to the top right, we go down to the bottom left and across to the bottom right. Your stars, you gotta think about it. Your stars or key parts of the menu need to be anchored to those prime positions.
[00:15:02] Second, people have anchoring bias, meaning the first price they See, typically sets their expectation for the whole menu. That's why you put your highest price item first in a category. And every category needs a premium item. It makes everything else seem reasonable by comparison. Third, people avoid the extremes. They don't want to order the cheapest thing because they think it's low quality. They also don't want to order the most expensive thing because they think it's a ripoff or they think they'll be seen as a show off. They often pick something in the middle, so you put your stars in that middle position.
[00:15:37] Oftentimes a premium item will give you cover so that your star. Right? So if you've got a $43 entree, it'll give you cover for your $38 entree. In this case, right? One of your. One of your high. One of your stars, right? Here's a tactical thing you can do right now. Go look at your menu. Find your highest food cost items, meaning anything over 32% for casual dining, anything over 35% for fine dining. Those are your problems. They have to be tackled. You got to ask yourself, are these dishes popular enough to justify the cost?
[00:16:12] If yes, then figure out how to lower the food cost without impacting quality. If not, get rid of them. It's that simple. So I worked with another P3 member last year, Sarah. She runs a burger joint just outside of Austin. She had 47 items on her burger menu. 47. She was carrying 15 different apps, eight different burgers, 12 different side dishes. Her kitchen was a disaster. Her food costs were through the roof. Her staff was constantly messing up orders, which then was went back to making the kitchen as a disaster and driving food cost through the roof because all the waste. We cut her 47 item menu down to 24. We eliminated every dog, every puzzle. We kept the stars and fixed the plow horses. Her food cost dropped 8 points. Her kitchen ran smoother. Her customer satisfaction. Right, you know the, the meaning, the reason we're all in this is to make good experiences for customers. Her customer satisfaction scores went up simply because the food was more consistent. The ticket times were more consistent. And look, I get it. Cutting menu items feels scary. You think you're going to lose customers, but here's the thing. You're already losing money on so many of those items. Better to lose a customer than lose money on every customer. And actually, here's what happens. Here's what actually happens when you focus on doing fewer things better customers notice your food quality improves, your service gets faster, your profitability increases. So yes, you can Invest back into your business.
[00:17:46] Tony's story has a happy ending, right? So four months after we re engineered that menu, his food costs are consistently under 28%. His monthly profit increased by almost $9,000. He hired two new staff members, gave everyone a raise. That is what happens when you get your fundamentals right.
[00:18:06] So today, here's your homework. I want you to do this exercise sometime in the next seven days. List every single menu item. Calculate the exact food cost for every single one. And I mean exact down to the penny. Then look at your POS data and see how many of each item you sold last month. Plot all of that on the grid the same way that I described.
[00:18:27] Food cost goes top to bottom. Popularity goes side to side. Anything in the bottom left quadrant, right, those dogs, they get eliminated immediately. Anything in the top right, you figure out how to sell more of them. And then you get your puzzles and your plow horses up into that upper right. You do this exercise, I promise I guarantee you will find anywhere between I'll say, 3 and $10,000 in profit hiding in your menu. That's money that drops straight to the bottom line, which, P.S. means your pocket. It is there. You just have to look for it and make sure to go after it.
[00:19:02] So that's it. That's it for today. Menu engineering isn't complicated. There's a lot more on the subject. You can find YouTube videos. You can find other past episodes that we've done here.
[00:19:12] It's not complicated. It just requires discipline. It requires that you be focused. You gotta measure what. What matters, and then make decisions based on data, not emotion. You do that consistently, and you will build a more profitable business.
[00:19:27] Next week, we're gonna talk about labor cost optimization. I know it sounds really sexy, but I promise you this is another thing that's gonna make you more money. How to run leaner teams without sacrificing service. You don't wanna miss it. Again, thank you for tuning in. My name is Chip Close. This is the restaurant strategy podcast. I will see you next time on.
