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ABC/XYZ Analysis Explained - Syrve's Approach to Smarter Menu Management

17 June, 2024 |   | 

With soaring costs and high inflation continuing to make their presence felt in the F&B sector, managing your margins is critical. Menu optimisation is a key part of this process.

In order to balance costs and ensure customer satisfaction, you need a comprehensive understanding of the demand, profit and revenue associated with every single dish. How? Through data collection and analysis.

Traditionally, operators have relied on spreadsheets, sales logs and cash-register data to form their strategies. But these approaches are no longer viable.

In such a volatile, highly-competitive sector, efficient menu management requires a unified system that gathers metrics from all operational areas. This is where ABC and XYZ analysis comes in.

What is ABC Analysis?

Based on the 80/20 Pareto principle, ABC analysis is a method of categorising items according to their overall value within an inventory management system. The approach is based on the idea that 80% of sales can be assigned to 20% of the products.

This means classifying items under A, B and C categories in descending order, with each letter representing sales volume, revenue and profit respectively.

Thus for a restaurant owner, a best-selling dish with high revenue and profit would be designated as an AAA item. On the other hand, a poorly-selling dish that doesn’t generate much revenue or profit would be assigned a CCC grading.

Beyond these simple classifications, the model allows you to glean deeper insights about specific menu items, so that you can make more subtle but meaningful adjustments.

Say for instance, that you’ve got a dish with an AAB score. While this may generate plenty of sales, the margins are low. Based on this classification, you can decide to either lower the ingredient costs of the dish or increase the mark-up.

What about items with a BAA, BAB or BBA designation?. These dishes have low sales but the margins are high. Therefore, you’d want to improve their visibility by making menu adjustments or running promotions to improve customer awareness.

An extremely useful and insightful approach to inventory management, then. And XYZ analysis is equally useful.

What is XYZ Analysis?

The XYZ approach enables you to understand the performance of dishes over a set period. As with the ABC method, menu items are organised in descending order, according to their sales performance over a specific time period.

Based on the coefficient of variation, items are assigned a percentage. The higher the percentage, the more inconsistent the sales are. For instance, a dish with an X classification will have consistent demand, meaning that its coefficient ranges are low (0 – 10%). Those in the Y group typically have fluctuating sales volume with coefficients of 10-25%. Items in group Z have unpredictable demand, typically 25% plus.

Putting it all together, the demand for dishes in the X group can be easily predicted, while items with a Y-designation can be ordered less frequently. Those grouped under Z shouldn’t be ordered very often at all.

An Overlooked Approach to Menu Management

Pairing ABC with XYZ analysis can provide invaluable insights about your menu, enabling you to make adjustments that improve profits and positively impacting other areas of your operation.

So you might have assumed that this powerful methodology was widely used across the food and beverage sector. But it’s actually not.

The collection and analysis of large amounts of data is a laborious, complicated process when conducted manually. It requires skilled personnel or at the very least, staff that are capable of interpreting metrics.

Many owners just don’t have the resources, staff or will to make the jump. Another barrier to adoption is that in most restaurants the POS software doesn’t include ABC/XYZ functionality.

Syrve is the exception to the rule.

ABC/XYZ Analysis with Syrve

In contrast to other restaurant management platforms, Syrve allows you to fully exploit the potential of ABC/XYZ analysis. You don’t need to be an analytics expert, you don’t need to sacrifice valuable resources on recruitment and you don’t need to spend time setting up elaborate processes.

Our next-gen platform automates the entire process, automatically collecting and monitoring critical metrics from multiple data points. The resulting data can then be easily accessed via Syrve’s reports panel. Let’s now go into more depth about how Syrve implements ABC/XYZ analysis.

Data Collection

This is where it all starts. Syrve collects data from your front-of-house POS system as the orders come in, keeping track of the sales volume and frequency of each menu item. Inventory levels, stock movements and supplier purchases are also continually monitored in real-time.

ABC Categorisation

Using the data collected from the POS system, Syrve automatically categorises items according to their consumption rate and profit-making potential.

XYZ Categorisation

To assign XYZ classifications, our platform analyses historical sales data to gauge the demand variability of each menu item, also forecasting future demand patterns with the use of predictive analysis.

ABC/XYZ Reporting

Instead of relying on formula-laden spreadsheets, all the ABC/XYZ data you need is accessible via Syrve’s reports panel. From here, it’s easy to identify individual or grouped menu items and view the number of items within each classification. Histograms and graphs are also included to help you digest the data.

Menu Analysis and Recommendation Tool

An extremely powerful menu analysis tool also forms part of the package, providing three recommended actions for each menu item according to ABC/XYZ metrics: lower the cost, stimulate sales and remove from menu.

The Impact of ABC/XYZ Analysis on Your Restaurant

The use of ABC/ZYZ analysis can have far-reaching consequences for your restaurant, all of which are positive. Here’s how it can help in practice.

A More Profitable Menu

With the ability to identify best-selling and underperforming dishes, you’ll be able to fine-tune your menu. Items in high demand can be featured more prominently to maximize their profitability, while those that don’t sell can be removed altogether.

Optimised Stock Levels

By aligning inventory levels with item importance and demand trends, ABC/XYZ analysis helps optimise stock levels, preventing over/under-stocking and eliminating needless purchases.

Cost-Saving

Honing in on best-sellers and removing underperforming dishes cuts ingredient costs and reduces wastage dramatically. In the long-run, this is going to have a huge impact on your bottom-line.

Happier Customers

You’re also going to have happier customers because you’ll be ensuring that popular, high-value dishes are constantly available, regardless of demand spikes.

Final Thoughts

To conclude, ABC/XYZ analysis, when implemented with Syrve, offers a comprehensive system for managing your restaurant’s inventory. Given that this powerful solution isn’t widely used in the F&B sector, you have the perfect opportunity to gain a significant advantage over your competitors.

Learn more about Syrve’s best-in-class menu management software.

Dale Shelabarger

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