Menu optimisation is a valuable weapon for restaurants in the battle against soaring inflation. And with the right approach, you can defend your margins effectively.
Traditionally, restaurants refresh their menus for a host of reasons. It could be down to seasonal changes, the arrival of a head chef, or a company trying to re-brand the business or change its offering to get an edge on competitors.
But now, protecting your margin is probably the No.1 reason to revisit your menu.
In fact, with so much volatility around the supply and cost of ingredients, re-evaluating your menu should become a business-as-usual activity for the foreseeable future — out of necessity.
The good news is that it doesn’t have to be a drawn-out, energy-sapping activity. The process can be fast, simple and rewarding. Using data-driven Next-Gen restaurant technology, you can assess your menu’s performance in real-time and make changes easily to maximise your margins.
Here are five steps to follow:
#1: Know the cost and margin of everything
Before embarking on any menu changes, you need a solid handle on the cost of every dish, based on ingredients and labour. You can then rank every menu item according to profitability. As the cost of ingredients shift, the picture will update. With the best tech, this is achievable in a few clicks. You don’t need to be pouring over spreadsheets for hours.
Next steps: Looking at the results, you can determine what level your target margin should be as a business. This will vary, depending on the nature of your restaurant and the volumes you sell.
The menu analysis may deliver some surprises. You can flag up any menu items that deliver little margin — and these dishes could be candidates for the axe.
During the pandemic, UK restaurant chain Farmer J optimised its menu. Its meatballs were the most complex item, taking up to two hours to hand-roll each day. Managers removed them and focused on their core mains instead.
However, some dishes which are core your brand’s offering may be immovable. The best option could be to change the recipe slightly — using fewer expensive ingredients to reduce costs, without compromising on quality — or to increase the price to boost the margin.
#2: See what’s selling and what isn’t
Your system’s data should tell everything about customer demand over recent weeks and months — so you can rank your menu according to popularity as well as margin.
The best tech will allow you to carry out ABC/XYZ analysis. The ABC part of this will tell you sales volumes, turnover and profit. For example, you might discover:
- Which 20% of menu items yield 80% of turnover.
- The 15% of menu items that deliver 15% of turnover.
- The remaining 65% of items which account for 5% of turnover — and are therefore prime candidates for closer examination and removal.
But before you make any decisions, the XYZ part of the equation is also important. This will tell you whether demand is consistent or erratic. Items with erratic demand can be a problem if you to keep them in stock and prepped, only for food to go to waste.
Next steps: Consider removing ‘dead weight’ items with high ingredients costs, low margins and poor or erratic sales. Most of your customers won’t miss them.
#3: Think in terms of ‘risk assessment’ with ingredients and labour
As we mentioned with the meatballs examples, kitchen time is at a premium — so must be spent wisely across your menu. This is especially the case in a labour market where salaries are rising and the supply of employees is limited.
The same approach also needs to be applied to your ingredients. Your tech should be able to able to flag up your exposure level across your menu from every single ingredient. For example, maybe there’s a particular meat, vegetable, or fresh herb — which is proving harder to source and the cost is spiralling — but it appears in six or seven dishes? You need to know.
If you have a large number of at-risk ingredients, then you will struggle to support your menu.
Next steps: Use information about ingredients across your menu to reduce your exposure. If you can only source small quantities of scarcer items, then you’ll want to prioritise these for your most popular, high-demand dishes. You could drop less popular menu items or substitute the ingredient.
#4: Adopt a ‘scarcity mindset’ in the kitchen
This is about a war on waste. Gone are the days when ingredients were plentiful. Instead, your supplies are more like your cash-flow. Being able to carry out quick and regular inventory checks using a handheld device is a must.
Next steps: This ‘scarcity mindset’ should pervade the kitchen. It means using your tech to forecast sales over coming days — so you order the right amount of ingredients at the right time. It means keeping a check on inventory in real-time. It means using system-generated forecasts, prep plans and portion sizes to conserve precious ingredients for another day.
#5: Launch new dishes that are optimised for margin and supply
New menu items need to be delicious, on-brand, and popular with customers. But they should also be viewed in terms of their time/cost to prepare, how many at-risk ingredients they use, and what kind of margin they deliver. Understanding the impact on making changes including suppliers requires considered analysis.
Next steps: With the right restaurant tech, you can create ‘what if’ scenarios of new supplier changes. You can assess your exposure in terms of at-risk ingredients, forecast your profitability, and then track demand once the new item is launched.
Warning: Handle with care
But in today’s hospitality industry, failure to act is also dangerous. You could find your margin gets eroded overnight by market forces — and it’s weeks before this shows up in your accounts. However, the latest restaurant tech gives you ‘menu agility’. It lets you act quickly to assess, react and move ahead with confidence. You can constantly fine-tune your offering, using trusted data to balance cost, quality and customer satisfaction.