What is Menu Engineering

Menu engineering is a strategic approach that helps restaurant owners analyze and optimize their menus to maximize profitability. It involves evaluating the performance of each menu item based on both its popularity and profitability, including factors like food cost percentage, allowing restaurant owners to make data-driven decisions about which dishes to promote, redesign, or remove.

In the highly competitive restaurant industry, menu engineering is essential for more than just increasing profits. By carefully designing your menu with insights from menu psychology, you can influence customer choices, enhance their dining experience, and reduce waste, all while improving operational efficiency.

This blog will walk you through the basics of menu engineering, its benefits in boosting restaurant profits, how it can help meet customer expectations, and the tools available to streamline the process. We'll also cover the key steps in implementing menu engineering in your restaurant and the common mistakes to avoid.

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What is Menu Engineering?

Menu engineering is a method that helps restaurant owners and managers evaluate their menus using data and analysis. It goes beyond just listing menu items and pricing; it’s a way of scientifically optimizing your menu to make it more profitable. By using sales data, food cost information, and customer behavior insights, menu engineering helps you understand which dishes work best for your business.

The goal is to identify the most popular and profitable items and arrange them in a way that encourages customers to order those dishes. This strategy helps restaurants balance both customer satisfaction and profit margins.

Purpose: Optimizing Profits and Popularity

At its core, restaurant menu engineering helps restaurants maximize profits by analyzing the performance of each menu item. This process evaluates both profitability (how much profit each dish brings) and popularity (how often customers order it). By looking at both factors, restaurants can make informed decisions about which items to feature more prominently, which to adjust in menu price, and which might need to be removed entirely.

For example, an item that’s popular but not very profitable might need a price adjustment or a change in ingredients to boost its margins. Similarly, a highly profitable but less popular item might need more promotion or a better position on the menu to attract more attention.

Key Components: Stars, Puzzles, Plow Horses, and Dogs

One of the most important concepts in menu engineering process is the categorization of menu items into four groups based on their popularity and profitability. These menu engineering categories help restaurant owners make strategic decisions about each dish:

1. Stars: These are the best-performing items, both popular and profitable. They should be highlighted on the menu to maintain their visibility and sales.
2. Plow Horses: These are popular but not very profitable. To improve profitability, restaurant owners can consider slightly increasing their prices or adjusting the portion size or ingredients.
3. Puzzles: These are highly profitable but not very popular. The challenge is to figure out how to make these items more appealing to customers, often through better marketing or menu placement.
4. Dogs: These are neither profitable nor popular. In many cases, it makes sense to remove these items from the menu altogether, freeing up space for better options.

By organizing menu items into these categories, restaurant owners can make strategic decisions that improve both profitability and customer satisfaction.

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The Importance of Menu Engineering in Restaurant Success

1. Boosting Profit Margins

One of the primary goals of menu engineering is to increase a restaurant’s profit margins. By analyzing each menu item’s cost to prepare and its selling price, restaurant owners can identify high-profit, low-cost items that should be promoted more. These "stars" and "puzzles" on the menu are the dishes that contribute the most to the bottom line, and by strategically positioning and highlighting these items, restaurants can nudge customers toward choosing them.

For example, research suggests that about 70% of restaurant revenue often comes from only about 30% of menu items. This means focusing on these high-margin items is key to improving overall profitability without significantly increasing operational costs. Promoting these items through menu design, server recommendations, or specials can help drive more sales where they matter most.

2. Customer Behavior Influences

Menu engineering also plays a crucial role in influencing customer behavior. The way items are placed and described on the menu can have a significant impact on what customers decide to order. Studies have shown that customers tend to focus on certain areas of the menu first—typically the upper-right corner or highlighted boxes—and items placed in these areas tend to sell more frequently.

Strategically placing high-margin or signature dishes in these prime spots can boost sales for those items. In addition, the wording of menu descriptions and the use of visuals (such as pictures or symbols) can further enhance the appeal of these dishes. By understanding how customers read and interact with a menu, restaurant owners can steer customers toward the most profitable items without them even realizing it.

3. Reducing Food Waste

Another key benefit of effective menu engineering is the reduction of food waste. By carefully analyzing the performance of each menu item, restaurant owners can ensure that only profitable, high-demand items remain on the menu. Items that are rarely ordered or that result in high food costs (without significant returns) can be removed, reducing spoilage and excess inventory.

Food waste is a significant issue for many restaurants, with studies estimating that food waste can account for up to 10-15% of a restaurant’s food costs. By focusing on high-performing items and cutting out those that contribute to waste, restaurants can lower their food expenses, improve efficiency, and even help the environment by reducing the amount of waste sent to landfills.

In sum, menu engineering not only helps to boost profits but also ensures that the restaurant operates more efficiently by reducing unnecessary costs and enhancing the customer experience.

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Key Steps in Restaurant Menu Engineering

Step 1: Menu Item Analysis

The first step in menu engineering is to conduct a thorough menu analysis of each menu item. This involves collecting and examining data on how well each dish is performing in terms of both sales and profitability. Using your restaurant’s POS (Point of Sale) system, you can track which items are ordered most frequently and how much profit they bring in after accounting for food costs.

In addition to using POS data, tools like 5-Out provide deeper insights by predicting future demand at the item level. 5-Out uses AI and machine learning to forecast which dishes will likely see higher demand based on past sales patterns, seasonality, and external factors like holidays or events. This allows you to plan your menu proactively, ensuring that high-demand items are stocked and ready while reducing the risk of running out or over-ordering ingredients.

For each item, calculate the contribution margin, which is the difference between the selling price and the cost to make the dish. Pairing this with demand forecasts from 5-Out helps you not only identify which items are both popular and profitable but also predict future trends. This way, you can fine-tune your menu to feature items that will continue to perform well, optimizing inventory and ensuring your decisions are informed, data-driven, and forward-looking.

Ready to take your menu to the next level? Start using data-driven tools like 5-Out to predict future demand and optimize your restaurant’s profitability. Don’t wait—begin making smarter, more informed menu decisions today!

Step 2: Categorizing Menu Items

Once you have analyzed the performance of each dish, the next step is to classify them using a menu matrix. This is where menu engineering really comes into play. The four categories—stars, plow horses, puzzles, and dogs—are determined based on the item’s profitability and popularity.

• Stars are high-profit and high-popularity items, your menu’s best performers.
• Plow Horses are popular items but with lower profitability. These dishes are important for customer satisfaction but may require some tweaks to boost their margins.
• Puzzles are highly profitable but not frequently ordered. These need more attention in terms of placement or promotion.
• Dogs are neither profitable nor popular, and in most cases, should be removed or replaced.

This classification allows you to make strategic decisions about what to feature, promote, or eliminate from the menu.

Step 3: Menu Design and Placement

After categorizing your items, the next step is to redesign your menu with intention. Menu design isn’t just about aesthetics; it’s about guiding customer choices. Research shows that customers’ eyes are naturally drawn to certain areas of a menu, such as the top-right corner or sections that are boxed or highlighted. This "sweet spot" is where you should place your most profitable items, like stars or puzzles, to increase their visibility and sales.

Additionally, using visuals like pictures, symbols, or even bold typography can help draw attention to certain dishes. Descriptive, appealing language in the dish descriptions can also enhance customer interest. The goal is to make high-margin items stand out without overwhelming the customer with too many choices.

Step 4: Testing and Adjustment

Menu engineering is not a one-time task; it’s an ongoing process. After implementing changes, it’s important to continuously monitor sales data and customer feedback to see how well the menu is performing. Use this data to make further adjustments as needed.

For example, if a puzzle item you’ve promoted still isn’t selling well, you may need to revisit its price point or description. On the other hand, if a plow horse’s profitability improves after a price increase, it’s a sign that the change was effective. Regularly reviewing and refining your menu based on data ensures that it remains relevant, profitable, and appealing to your customers over time.

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Menu Engineering Tools for Restaurant Owners

1. Data Analysis Software

To effectively implement restaurant menu engineering, leveraging data analysis software is essential. There are several tools available that help restaurant owners make sense of their sales and cost data. These tools can track the performance of each menu item in terms of both profitability and popularity. For example, platforms like Excel can be used for simple data analysis, while more advanced software, such as 5-Out, offers detailed insights and automated reporting. These tools allow you to quickly identify which items need attention and make informed decisions that align with your restaurant’s goals.

2. POS System Integration

Most modern restaurant POS systems are capable of providing valuable insights into menu performance. By tracking sales in real-time, POS systems help you monitor which items are popular, which are underperforming, and what your customers are regularly ordering. These systems also capture data on when certain items are most popular, allowing for more accurate adjustments to menu offerings or menu pricing. Integrating menu engineering with your POS system means you can streamline the process and make data-driven decisions with ease.

3. Collaboration with Chefs and Managers

Menu engineering is not a task that should be done in isolation. Working closely with your kitchen staff and management team ensures that the data-driven decisions you make align with the operational realities of your restaurant. For example, a chef might suggest alternative ingredients or techniques that could improve the profitability of a popular item. Similarly, managers can provide insights into how customers are reacting to menu changes or pricing adjustments. By collaborating, you can ensure that menu adjustments not only make sense financially but are also feasible from a kitchen and service perspective.

4. Sales Forecasting Tools for Predicting Demand

In addition to data analysis and POS integration, using a sales forecasting tool such as 5-Out can greatly benefit your menu engineering efforts. 5-Out uses artificial intelligence and machine learning to predict future demand, even down to the item level. This forecasting can help you determine which menu items will likely perform well in the future, based on historical data and external factors like seasonality or local events.

With accurate sales forecasting, you can adjust your menu to focus on high-demand items, ensuring you have the right ingredients in stock while avoiding overproduction and waste. This proactive approach not only optimizes profitability but also enhances operational efficiency, making it easier to plan ahead and reduce unnecessary costs. The ability to predict future demand adds an extra layer of precision to your menu engineering strategy, helping you stay ahead of customer trends.

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Common Menu Engineering Mistakes to Avoid

1. Neglecting Data

One of the biggest mistakes in menu engineering is making decisions based on intuition rather than actual data. While a chef or manager may have a gut feeling about which items are customer favorites, it’s crucial to rely on hard data, such as sales performance, food costs, and customer feedback, to guide menu changes. Neglecting data can lead to poor decisions that hurt profitability or fail to resonate with customers. Tools like your POS system or sales forecasting software provide invaluable insights that allow you to make informed adjustments to your menu, ensuring that changes align with customer demand and financial goals.

2. Overcomplicating the Menu

Another common mistake is having too many menu items. A large, overcomplicated menu may seem like it offers customers more choices, but it often overwhelms them, making it harder to decide. Research has shown that too many options can lead to decision fatigue, where customers may choose something familiar instead of trying new or high-margin items. Additionally, more menu items mean more ingredients, higher food costs, and potential waste. Streamlining the menu to focus on a smaller selection of well-performing, profitable dishes not only reduces operational complexity but also improves the customer experience.

3. Ignoring the Customer Experience

While maximizing profitability is important, it’s crucial not to overlook the customer experience in the process. Menu engineering should balance profitability with customer satisfaction. For instance, removing popular items that may have lower margins could alienate regular customers and hurt overall sales. Similarly, increasing prices without enhancing the perceived value of the item may drive customers away.

A successful restaurant menu is one that reflects both profitability and customer preferences. Ensure that any changes you make to the menu still meet customer expectations in terms of quality, variety, and price. Customer feedback is a valuable tool in this regard, helping you strike the right balance between running a profitable operation and maintaining a menu that customers love.

Menu engineering is a powerful tool for restaurant operators looking to boost menu profitability and streamline operations. By analyzing food cost percentages and understanding the performance of each dish, you can create a profitable menu that not only satisfies customers but also enhances your bottom line. Regularly reviewing sales data, making strategic adjustments, and using tools like 5-Out to predict demand at the item level will help you stay ahead in a competitive market.

Ready to optimize your menu with precision? Request a demo of 5-Out today and see how it can help improve your restaurant's profitability!