Maintaining your restaurant’s profitability in such a volatile and competitive industry is easier said than done. With rising ingredient prices, fluctuating demand and heightened customer expectations, prudent cost management is more important than ever, especially with regards to your menu.
To ensure a sustainable and profitable business, it’s a case of striking the delicate balance between controlling costs and delivering quality. In this article, we’ll look at the key menu management strategies that will help you to successfully walk this tightrope.
Food costs are one of the largest expenses for any dining establishment - every single ingredient and dish carries a cost. If these costs aren’t managed properly, they’ll cut deep into your bottom line. In a sector where profit margins are paper thin, the effects on your restaurant could be disastrous.
So it’s of crucial important to have a handle on the profitability and cost of every menu item. Only with a complete picture can you identify the specific areas in which expenses can be reduced. Detailed menu analysis is the best place to start.
Accurate menu analysis, or menu engineering as its often known, requires accurate sales data that allows you to evaluate the popularity and profitability of all your dishes.
High-margin, popular dishes should be promoted, while low-margin low-demand items should either be re-evaluated or removed from your menu altogether.
Although a seemingly straightforward process, keep in mind that a highly popular dish may not necessarily be the most profitable. Conversely, a high-profit dish may not sell at all. This is where ABC/XYZ analysis can prove extremely helpful.
The ABC/XYZ model categorises menu items and ingredients based on their contribution to overall turnover and profit. ‘A’ represents high-profit items, ‘B’ represents medium-profit items and ‘C’ represents low-profit items
Thus, best-selling dishes with a high revenue and profit would occupy the ‘A’ category, while moderate sellers with medium revenue and profit would sit in the ‘B’ category. The ‘C’ category would be populated with poor performers that don’t generate much profit or revenue.
The true benefit in ABC/XYZ analysis lies in its ability to address the many variations between profit, demand and turnover. For instance, a popular, high-profit dish with low margins would be classified as an AAB item.
Conversely, a dish with low sales or demand but high margins could be assigned a BAA, BAB or BBA designation. With this data, it’s much easier to understand the true value of your menu.
Further insights can be gleaned from XYZ classifications. This model organises items based on sales performance over a specific period. So an X item would have consistent demand, an item in the Y category would have fluctuating volume and a dish in the Z group would have unpredictable demand. From this data, you can see which items should be ordered less frequently and which items shouldn’t be ordered very often or at all.
The proper implementation of the ABC/XYZ model has the potential to reduce costs significantly. Used together with accurate sales forecasting, it’s one of the most powerful ways of adapting to culinary trends and meeting customer expectations. But surprisingly, it’s not a method used by many restaurants.
To effectively manage restaurant costs, menu pricing is critical. But it’s a major challenge. How do you protect your margins while ensuring that your menu prices are both competitive and acceptable to your patrons?
To begin with, comprehensive cost analysis will be required. You’ll need to know the precise cost of purchasing, preparing and selling your dishes. Furnished with this data, you can then calculate the food cost percentage.
Food cost percentage is a key metric which reveals the how much you spend on food inventory and the amount of revenue generated by all your dishes.
It’s calculated by dividing ingredient cost by the dish selling price, then multiplying the figure by 100. As a rule of thumb, you’ll want keep your food costs between 28% and 35% of revenue. By ensuring that your food costs are kept within this range, you’ll take a major step in protecting your margins.
To fine-tune your menu’s prices further, keep a close eye on your competitors. Maintaining an acceptable food cost percentage is crucial. But it’s equally important to ensure that your prices remain competitive in the market. Lose sight of your competitor’s pricing strategies and you risk losing customers.
Menu size can have a significant impact on your expenses. A large and complicated menu requires a wider variety of ingredients. This makes inventory management more difficult which often results in overstocking.
Because there are more dishes for your chefs to create, kitchen prep is often rushed, leading to inefficient ingredient usage and waste. In some cases, extra kitchen staff may even be needed to prepare all the dishes, thus driving up labour costs.
Negative effects will likely be felt front of house as well. Oversized menus can overwhelm customers resulting in decision fatigue. This can have a negative impact on table turnover rates potentially leading to diminished returns. The most obvious solution then, is ensure your menu is smaller and more focused.
As a result, stock control is simplified, kitchen operations are made for efficient, restaurant food waste is reduced and your table turnover rate increases. All of these can help lower your overall expenses and ensure a more profitable operation.
By creating a seasonal menu, you can take advantage of those ingredients more commonly available during certain times of the year. The abundance of in-season ingredients means that they’re typically less-expensive and easier to source. In some cases, suppliers will offer discounts on bulk purchases which can help to reduce costs further.
The use of seasonal menus encourages flexibility, enabling your restaurant to make changes to dishes according to market conditions and availability. This kind of menu agility prevents an over-reliance on expensive, hard-to-find ingredients which will ultimately keep your costs in check.
Over-portioning is another source of considerable expense. Often caused by a lack of standardised portion and ingredient guidelines as well as inadequate training, it’s the kind of malpractice that can really take a bite of your restaurant’s profits.
The solution is to implement a policy that standardises portion sizes for every single dish, while also detailing precisely the type and amount of ingredients required. The policy should be accessible to everybody in your restaurant.
With centralised guidelines in place, your kitchen staff can work from accurate recipe information to ensure all ingredients are utilised properly. For some restaurants, the resulting impact on waste reduction can be significant.
So what of your customers. How do you continue to meet their expectations while implementing cost-saving strategies?
A key strategy is to prioritise quality over quantity. This is particularly important when you’re working from a smaller menu. Yet with such a strategy in place, your patrons are going to appreciate fewer, well-executed dishes as opposed to an endless array of substandard ones.
Should you decide to make adjustments to portion sizes, be sure to communicate them to your customers, framing the changes within the context of sustainability and quality. These are the kind of principles that align with the sensibilities of most right-minded people.
Collecting customer feedback is an important practice that’s sometimes overlooked by F&B operators. But the information that can be gathered from your patrons may prove invaluable, particularly with regards to cost management.
The feedback might reveal that your restaurant’s portion sizes are too large. Given that plate waste is one of the biggest sources of food waste in the restaurant industry, this is something that would clearly need to be addressed. In doing so, you’d reduce waste and negate the damaging effects on your bottom line.
Staff feedback can be just as important, especially when it’s from your kitchen team. Wasteful processes might be in place that need streamlining, such as over-preparation and inaccurate portioning.
Feedback from your front-of-house employees can be just as valuable. Essentially your eyes and ears, they can observe customer reactions to dishes, potentially offering you key insights about portion-sizes, ingredient usage and popularity.
The key then is to have in place a feedback system that’s easily accessible to both customers and employees. For your patrons, comment cards can be useful, as can short digital/in-person surveys. To gain insights from your staff, suggestion boxes, surveys and regular meetings are popular and effective feedback channels.
Maximising your customer’s price and value perception can really drive profits. It can also help to reduce costs. There are numerous approaches to take here. For example, offering complimentary sides is a tried and trusted strategy that’s used to counteract the effect of higher prices; if customers feel that they’re receiving extra benefits, they tend to be more willing to pay premium prices.
In addition to improving your profit margins, complimentary offerings provide an opportunity to move stock that might otherwise go to waste. This same principle applies to bundled deals.
By combining menu items into a ‘meal deal’ or some other value-added perk, you’re effectively encouraging customers to order more. So as well as avoiding excess inventory, you’re providing a value benefit to your patrons and potentially increasing your average transaction levels at the same time.
All of the strategies detailed above are proven cost management methods. When done properly, there’s little chance of compromising customer experience. But they can be extremely challenging to implement manually. To overcome this challenge, many F&B operators are making the leap to next-gen technology. More often than not, the effects prove transformative.
The most advanced restaurant management platforms are essentially self-driving, end-to-end systems that integrate, streamline, monitor and manage all key operational areas. This includes menu management.
Synching your menu with sales and inventory levels, the latest tech can provide real-time insights about its overall value, including the cost of every single dish and the profitability of each item.
The most sophisticated solutions also simplify the otherwise difficult task of implementing ABC/XYZ. Categorisation is done automatically, allowing you to see how all ingredients contribute to overall profit and turnover. As a result, it becomes much easier to balance costs, quality and customer satisfaction.
The costs of ingredients are automatically tracked with price fluctuations and supplier prices also factored in. Cost per dish calculations are more precise, ultimately ensuring that menu prices are set to ensure your desired profit margins.
Advanced algorithms are also used to analyse sales data and patterns. From a centralised dashboard, you’ll be able to view accurate data about the most profitable and popular dishes. Pricing can then be adjusted for high-demand items to maximise profits, while less-popular dishes can be removed to boost your bottom line.
In addition, menu performance can be tracked over time which makes it easier to make pricing adjustments based on seasonality, trends and customer preferences.
Some next-gen systems also enable you to test price changes using ‘what if’ scenarios before rolling them out live – a powerful and useful tool for safely evaluating the impact price increases might have on sales, revenue and customer satisfaction.
Deploying standardised portion and ingredient control information tends to be straightforward as well. Typically, it’s a case of creating your guidelines and then uploading them to the system which then takes care of the actual distribution. The result is a centralised document that can be accessed by all of the staff involved in food prep.
Best-in-class software for restaurant management will include a raft of upselling tools to enhance your customer’s experience. Once promotions such a, combos, meal deals and two-for-one offers are set up (usually in the back end), the system remembers them and prompts staff as they take orders. To encourage impulse purchases, the prompts can also be displayed on customer-facing POS screens.
With the right strategies in place, managing your restaurant costs effectively without negatively impacting customer experience is entirely achievable. But the necessity for comprehensive, actionable data requires a great deal of time and effort.
For restaurants where time is at a premium, such a labour intensive process is just not feasible. And given the potential for data errors and consistencies, the only solution is today’s volatile industry, is to rely on an advanced system such as Syrve. It’s the best and most efficient way manage your restaurant’s costs effectively and ensure your customers remain satisfied.