USER GUIDE

Introduction

The Menu Engineering Simulation demonstrates the basic techniques used in menu pricing
decisions, and the consequences of those decisions; it also builds in considerations of menu
positioning and menu item promotions.

You can run the simulation as many times as you like to see how different decisions change your
results and, if you are playing as a member of a group, compare your results with others in your
group on the Leader Board.

Scenario

It is the end of spring and you have just been appointed as the new F&B manger in a restaurant
serving Italian food and open seven days per week, evenings only. Your Head Chef has given you a
list of 12 main course dishes to choose from for the coming 13-week summer season and you must
select the seven dishes that will go on the menu.

The restaurant can serve a maximum of 200 covers each day and your task is to achieve the greatest
contribution from food sales over the 13-week summer period, using these decisions;

Composition of the menu – At the beginning of the exercise you choose seven dishes from the
chef’s 12 suggestions. Once the exercise starts, you cannot alter your selection.

Menu prices – You can change the prices on the menu at any time and this is your main tool for
maximising demand and contribution.

Menu position – Each week, if you wish, you can alter the position of the items on the menu in order
to promote selected items.

Promotion – You have a budget to spend on table tent cards (table talkers). You can change the
amount you spend and the items you spend this budget on each week to promote the sale of
different menu items.

What to do

The aim of this exercise is to learn by doing, so the best way to use it is to jump right in and have a
go. You can play as often as you like and, by playing several times, you should begin to see the
relationships emerge between price, demand, costs and contribution.

Starting the exercise

Once you are logged in, select the seven items you want on your menu from the 12 presented, then
simply press the ‘Start the Exercise!’ button to load the starting position

You will see the results from the first day of trading for the summer season. This is to give you some
information to work with to make your decisions and you have another 13 weeks to go. From now
on, you make decisions for each week and the exercise will return your weekly sales results.

Remember that your goal is to maximise contribution.

Contribution is defined as Sales – Direct Costs and is the amount left from sales revenue once the
costs directly associated with making those sales have been paid. In our case, those costs include,

• The cost of the food served to customers (Cost of Sales)

• Direct promotion costs (the cost of table tent cards)

Once these costs have been deducted, the remainder can contribute to the operation’s other costs
and eventual profits.

Pricing

You can increase demand by lowering the price of an item and increase contribution by raising the
price, but there are some other important considerations.

• Reducing a price might simply divert demand from other, perhaps more profitable, items,
rather than increasing overall demand.
• If an item is particularly price sensitive, then a small percentage increase in price might lead
to a much bigger percentage decrease in demand.

These are just two of the considerations you must bear in mind when pricing your menu each week.
It is important to gain an understanding of the price sensitivity of each item, which you will need to
do by making small changes and gauging the reactions.

Menu position

The menu is laid out with one item prominently displayed across the top of the menu card and the
other six items in two columns of three underneath. Sales of the item placed at the top will be
boosted, as that is the ‘Chef recommends’ position and the eye is naturally drawn there first. The
item placed at the top of the right-hand column under the top item will also receive a small boost, as
people tend to look there next when scanning the rest of the menu.

You can drag and drop items around the menu to change their positions. Simply left-click and hold
the hand icon on each item and drag it to the new position.

Table talkers / table tent cards

Table tent cards, or ‘table talkers’ are used to promote specific dishes and these cards are more
effective if they are used to promote a single dish at a time, rather than several dishes at once. You
have a budget of 3,000 to spend over the whole 13-week period and once that is used up no more
spending on promotion will be possible. It costs 230 for enough cards for all tables for one week.
Viewing your results

The exercise runs weekly for 13 weeks. You enter the prices, alter menu positions and allocate your
promotion budget for each week, then click the ‘Submit decisions’ button to view the results. The
Boston matrix graph, showing which menu engineering category each menu item falls into, is
updated each week with the new results and the table underneath the matrix shows the running
totals.

The exercise is over once you reach Day 92, the end of the 13-week summer season. You can run the
exercise again by clicking the ‘Restart’ button,

At the end of any ‘run’ of the exercise, that is, when you reach Day 92 and the simulation displays
‘Game over’, you can see the results of your decisions on the Boston matrix and in the table
underneath that graph. You can also click the ‘Analysis button just above the matrix to see a table of
graphs showing you your decision and results history through the 13 weeks of the game.

Select the graph you want to view by using the drop-down arrow (highlighted in yellow here) to
open the list of available graphs.

If you want to store this run’s results to compare them with other runs, or other people’s results,
click the ‘Yes, store the results!’ button,

You can give a title and a short description to this run’s results (perhaps note a few learning points)
and choose whether to make the results public and add them to the leader board. If you are a
member of a group, you will be able to compare your results to those of others in your group.

To view your stored results and the leader board, click the ‘View Results’ button,

From the results page, you can ‘View’ any set of results and review and compare changes in selected
variables over the course of the exercise using the side-by-side comparative graphs on this results
page.
Here, for example, we can track the prices of our two ‘headline’ menu items in the latest run of the
simulation,

The aim of this simulation exercise is to gain understanding of how pricing and direct cost decisions
affect contribution from meal sales to overall profitability. To this end, we recommend that each
user should make brief notes on each day’s decisions, giving reasons for any changes to the variables
of price, direct promotion spending and any alterations to menu positioning. The template on the
next page can be used for this (copy the template for multiple runs).

If, for example, you changed the prices of menu items, was that to increase demand, to increase
profitability, or for some other reason? Did you change variables for strategic reasons, or were you
reacting to events on a day-to-day basis? What were your reasons for changing the menu position of
different items?
Decision record

Week Decisions changed Reasons

10

11

12

13
MENU ENGINEERING

Decisions for menu analysis will always involve educated guessing. However, with
the information from these analyses, the guesses become far more accurate.

This Menu Engineering process is based on system of averages. The goal is to constantly
improve a menu’s profit by influencing GP% and Number Sold of each menu item. In the
analysis it is important that food and beverage items are dealt with separately as they
normally differ greatly in price levels and numbers sold. Similarly, starters and desserts
should be considered separately, as combining the calculations affects the results and give
misleading classifications.
Rationale for Classification:

Dog - Under Average Quantity Sold

Under Average Gross Profit
Puzzle - Under Average Quantity Sold
Over Average Gross Profit
Plough horse - Over Average Quantity Sold
Under Average Gross Profit
Star - Over Average Quantity Sold
Over Average Gross Profit
WHAT TO DO WITH PLOUGH HORSES, STARS, PUZZLES AND DOGS

A menu is a portfolio of items. The way you manage this portfolio determines what your
consumer demand and profit contribution margin will be. The key to any menu’s success is
whether it produces more customers and a greater contribution.
Menu engineering is a tool that food-service operators can use to evaluate menu
performance. It requires that the operator know each menu item's total product cost,
selling price. and quantity sold over a specific period. A menu item's revenue contribution
margin and sales activity are categorised as either relatively high or low. Each menu item is
classified and evaluated for both its marketing (popularity) and pricing (profit) success.
By categorizing and classifying menu items through logical mathematical procedures, menu
engineering enables the operator to make the right decisions.
Every attempt to improve your menu begins with a statistical evaluation of your current
situation. A food-service operator's objective is to make the next menu more profitable and
appealing to the guest. To do this, management must consider:

 The wants and needs of the target market

 What menu items to offer
 How and where to place each item on the menu
 How to graphically design the complete menu

Management needs accurate information to answer these questions. Hence, the first step
in menu engineering is to systematically gather information, most importantly, the cost
price of each menu item.
All recipes require lesser or greater time and skill depending on the product recipe and
stage of raw or readiness of the ingredients. For the purpose of this exercise we will ignore
labour costs.
When accurate information has been gathered and analysed for each menu item, the items
are then categorized for decision making. All Menu items can be grouped into four
categories: Stars, Plough Horses, Puzzles and Dogs.
Stars. Menu items high in both popularity and contribution margin. Stars are the most
popular items on your menu. They may be your signature items.
Plough horses. Menu items high in popularity but low in contribution margin. Plough
horses are demand generators. They may be the lead item on your menu or your signature
item. They are often significant to the restaurant's popularity with price conscious buyers.
Puzzles. Menu items low in popularity but high in contribution margin. In other words,
Puzzles yield a high profit per item sold, but they are hard to sell.
Dogs. Menu items low in popularity and low in contribution margin. These are your losers.
They are unpopular. and they generate little profit.
Once you have grouped your menu into the four key categories you are ready to formulate
strategies for dealing with them. Each category must be evaluated separately and separate
strategies formulated for each.
What to do with:
Stars. These items are often what returning visitors come to your restaurant for, so you
must make sure they are consistently at the highest quality and prominent on the menu.
You should also be very aware of the price elasticity of these items as, if elasticity is low,
they might be able to absorb a relatively high proportion of any price increase without a
significant drop in sales volume. Instead of increasing the price, consider spending on in-
house promotion, but remember to check to see that any increase in profit from stars is
greater than the cost of the promotion!
Plough horses. These items sell well but generate below average profits; the temptation is
to simply increase the price, but be careful, they might be very price sensitive and so a small
price increase could lead to a large drop in sales volume. As with the stars, you need to be
very aware of the price elasticity of these items, so test that by making small price changes
in increments. For example, if you feel the price of a plough horse should increase from, say
12.00 to 13.00, try increasing it to 12.25 first and gauge the reaction. Try to limit any price
rises for plough horses to simply passing on any increases in ingredient costs and consider
putting other price rises onto star items first. Plough horses are often ‘signature’ or other
important items on a restaurant’s menu and can be the reason many guests visit. In these
cases, their relatively low profitability can be considered a secondary factor – in retail terms,
these may be regarded as a ‘loss leader’.
Puzzles. Try repositioning puzzles on the menu and promoting them to increase their
popularity. Can you reduce their price a little to maintain acceptable profitability while
increasing demand? Notice, again, that this will require you to have a good knowledge of
the price elasticity of your menu items. And be careful not to reduce the price to a level
where it starts to draw sales away from star options because the puzzle has now become
better value for money.
Dogs. You do not really want dog items on the menu, as they are neither popular nor
profitable. But menu engineering is based on averages, so it is important to bear in mind the
nature of averages and that some things will always be ‘below average’. Judge dogs in the
light of the other items on the menu. How far below average profit and average popularity
are they? Are they performing another useful function, such as adding needed variety to the
menu, or providing an alternative, such as a vegetarian option, without which other guests
might not visit?
Summary
Menu engineering provides management with a tool to evaluate the effectiveness of its
current menu and to make decisions on menu pricing, content and design. It is a step-by-
step process that helps management develop a menu with both popularity and profits.

Every attempt to improve your menu must begin with a statistical analysis of your current
situation. By categorizing and classifying menu items through a logical process, menu
engineering enables you to make better decisions.
The key to any menu's success is whether it produces more customers and a higher
contribution. Your objective should always be to make the next menu more profitable and
more appealing to the guest.