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Using accurate recipe costing, learn how to effectively make decisions about your menu that affect your bottom line. Citing examples, see how decisions being made on partial or incomplete data can decrease your profitability. Learn about the flaws of the traditional dog/star methods. Review the menu layout and eye gaze studies. Drive your menu for profitability!
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Effective Menu Engineering For Your Food & Beverage Menus
SlideShare PresentationWesterville, OH n June 27, 2013
© 2013 Return On Ingredients LLC n P.O. Box 2387 n Westerville, Ohio 43086-2387 n 614.423.4410 n Fax 614.340.7946
Request to have this presentation conducted live for your association, group or event at [email protected]
Mark Kelnhofer
• BA in Accounting and Business Administration in 1993• Masters in Business Administration (MBA) in 2005
• Ohio Dominican University, Columbus, Ohio• Manufacturing Cost (1993 – 2013)
• Plastics, Lighting, Tire Repair Kits, Buses, Restaurants• Bravo/Brio Restaurant Group (2002 – 2010)• Return On Ingredients (2009 – Present)
• Bravo/Brio Restaurant Group, Eddie V’s, Pistacia Vera, Bob Evans Farms, Gordon’s Gourmet, Midwest Culinary Institute, Luce, Crème de la Crepe, Cooper’s Hawk Winery, Zauber Brewing Co., Hospitality USA
• Ohio Dominican University (2007 – Present)• Adjunct Faculty, Financial & Managerial Accounting
• Midwest Culinary Institute (2011 – Present)• Adjunct Faculty, Food, Beverage & Labor Cost Controls
Bravo/Brio Restaurant Group
Return On Ingredients LLC l P.O. Box 2387 l Westerville, Ohio 43086-2387 l 614.423.4410 l Fax 614.340.7946Return On Ingredients® and its logo are registered trademarks by Return On Ingredients LLC
4.2% = $ millions in savings
Brio Tuscan Grille – Easton Town CenterColumbus, Ohio
Bravo! Cucina Italiana Virginia Beach, VA
Bon Vie – Easton Town CenterColumbus, Ohio
Mark Kelnhofer
• BA in Accounting and Business Administration in 1993• Masters in Business Administration (MBA) in 2005
• Ohio Dominican University, Columbus, Ohio• Manufacturing Cost (1993 – 2013)
• Plastics, Lighting, Tire Repair Kits, Buses, Restaurants• Bravo/Brio Restaurant Group (2002 – 2010)• Return On Ingredients (2009 – Present)
• Bravo/Brio Restaurant Group, Eddie V’s, Pistacia Vera, Bob Evans Farms, Gordon’s Gourmet, Midwest Culinary Institute, Luce, Crème de la Crepe, Cooper’s Hawk Winery & Zauber Brewing Co., Hospitality USA
• Ohio Dominican University (2007 – Present)• Adjunct Faculty, Financial & Managerial Accounting
• Midwest Culinary Institute (2011 – Present)• Adjunct Faculty, Food, Beverage & Labor Cost Controls
Other Food Manufactures…
• Restaurants• Casinos• Hotel & Lodging• Sports Arenas• Hospitals• Colleges and Universities• Catering and Banquet Centers• Theme Parks• Horse Race Tracks• ….and others!
Amtrak
Fox Business News08/02/2012
ROI Methodology
Recipe costing is the base for manyother aspects of the operations.
The Reality Is…
• Some restaurant operators do not have any written or documented recipes.
• Some have recipes that are written are only for execution, not costing.
• The few that have costing in many cases do not take a manufacturing approach.
• Menu pricing in some cases is not based on proper analysis and data.
What is in your control?
Knowing your costs
What is in your control?
Knowing your costs Establishing your selling
price
The Review of Accurate
Recipe Costs
Weights & Measures
• Portion control through the use of utensils (Tbsp, tsp, dishers, spoodles, etc.)
• Accuracy of weights and measures is paramount.
1 cup, Basil Leaves 1 cup, Granulated Sugar
0.2 ounce 6.8 ouncesDensity: 2.5% Density: 85.0%
Batch Recipes & Yields
• Batch recipes should account for the proper yield (what the result is) including known waste and the process (labor)
• When the purchased product has changed form in any way, a batch recipe should be created to account for the cost. “Hands on the process”.
• If you don’t account for the process and yields, your menu level costs in most cases is understated!
Packaging
• Packaging is part of the raw material cost, similar to the ingredients
• Packaging includes:• Bottles, lids• Boxes• Labels• Wraps
The Costing Problem
Ingredients
Prime Cost
Ingredients Labor
Total Cost
Ingredients Labor
Overhead
Total Cost Breakdown
Labor & Overhead Costs
• Your labor and overhead can be accounted for in the recipe
• Prep Time, Labor Routing• Time/motion studies (stopwatch)• Time (hours) is loaded on every recipe
• Standard Labor (BOH) Rates• By store• Includes wages and fringes
Direct (BOH) Labor Rate
• The direct (BOH) labor rate should include the base rate plus any other additional fringes associated with those personnel• Unemployment Insurance• Workers’ Compensation• Social Security & Medical• Health, dental and vision insurance plans• 401(k) or other retirement plans• Vacation & Sick Pay• Childcare
Overhead Rates
• Based on budgeted expenses and direct labor hours (BOH) by location.
Total Budgeted Overhead
Direct Labor BOH Hours = $0.000/hr.
OverheadRate
Predetermined Overhead Rate
Overhead Rates
• FOH Labor & Fringes• Advertising & Marketing• Repair & Maintenance• Supplies• Training• Utilities • Communications• Landscaping• Research & Development• Occupancy• Taxes
BudgetedDirect Labor
Hours
Predetermined Overhead Rate
Menu Level Costing
Menu Level Costing
Prime Cost
Menu Level Costing
Total Cost
Cost Management
NRA 2013 Chefs Survey, “Balancing Rising Food Costs”
How do you respond to higher costs?
Menu Engineering
MENU
The Guest
Reputation
Business
Employees
Families
Community
Menu Engineering
Do they know their cost? What is their pricing strategy?
Menu Engineering
• Your menu(s) are what you are in the business to do.
• Types of Menus• Lunch• Dinner• Brunch• Banquet• Kids
• Pricing Structures• By Markets, Demographics
• What are we engineering?
• Engineering sections of the menu
• What are we engineering?
• Engineering sections of the menu
• What are we engineering?
• Engineering sections of the menu
• What are we engineering?
• Engineering sections of the menu
• What are we engineering?
• Engineering sections of the menu
• Similar dishes in different categories should be analyzed separately.
• What are we engineering?
• Engineering sections of the menu
• What are we engineering?
• Engineering sections of the menu
Cost-Volume-Profit (CVP)
The components that we will be analyzing:• Menu items in the category• Quantity/volume sold• Selling Price• Unit Cost• Cost Percentage• Gross Margin Per Plate• Contribution Margin
PRODUCT COSTS:Ingredients, Direct Labor and Variable
Overhead
PERIOD COSTS:Fixed Overhead
and Profit
Cost-Volume-Profit (CVP)
The components that we will be analyzing:• Menu items in the category• Quantity/volume sold• Selling Price• Unit Cost• Cost Percentage• Gross Margin Per Plate• Total Profit
TOTAL COSTS:Ingredients, Direct
Labor and Total Overhead
PROFIT
My Famous Quote
“You cannot place percents in your
pocket!”
My Famous Quote
Change the focus from cost percent to gross margin dollars
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitGM $s
Pasta Fettucine 1 $11.99 $1.98 16.5% $10.01
Filet Mignon 1 $32.95 $12.49 37.9% $20.46
Which one would you rather have?Do we focus too much on cost percents?
Loss Leaders
Items that are sold at a loss that will result in other menu items being sold at a profit.
Loss Leaders
Items that are sold at a loss that will result in other menu items being sold at a profit.O
Drive profits!
Dog/Star Graph
Average Unit Gross Margin $
Popu
lari
ty In
dex %
StarHigh PI %, High GM $s
PuzzleLow PI %, High GM $’s
PlowhorseHigh PI %, Low GM $s
DogLow PI %, Low GM $s
Dog/Star Graph Flaws
Flaw #1Traditional Dog/Star reports only
analyze entrees only.
Dog/Star Graph Flaws
Flaw #1Traditional Dog/Star reports only
analyze entrees only.
Flaw #2The calculation looks as unit
gross margin as a base.
Dog/Star Graph Flaws
Flaw #1Traditional Dog/Star reports only
analyze entrees only.
Flaw #2The calculation looks as unit
gross margin as a base.
Flaw #3The graph plots all entrees together.
Cost Volume Profit Example
Menu Item Menu Price
Unit Cost
Cost % UnitProfit $s
Chopped Salad $5.50 $0.43 7.8% $5.07
Wedge of Iceberg $5.50 $0.33 6.0% $5.17
Caesar Salad $5.50 $0.41 7.5% $5.09
House Salad $5.50 $0.48 8.7% $5.02
Averages $5.50 $0.41 7.5% $5.09
Which menu item should be reviewed?
SALADS Menu in place for 6 months.
Cost Volume Profit Example
Menu Item Menu Price
Unit Cost
Cost % UnitProfit $s
Chopped Salad $5.50 $0.43 7.8% $5.07
Wedge of Iceberg $5.50 $0.33 6.0% $5.17
Caesar Salad $5.50 $0.41 7.5% $5.09
House Salad $5.50 $0.48 8.7% $5.02
Averages $5.50 $0.41 7.5% $5.09
Which menu item should be reviewed?
SALADS
If the decision was based on cost percent alone, the ‘House Salad’ would be reviewed for action.
Menu in place for 6 months.
Cost Volume Profit Example
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitProfit $s
Total Profit $s
Chopped Salad 1,664 $5.50 $0.43 7.8% $5.07 $8,437
Wedge of Iceberg 1,183 $5.50 $0.33 6.0% $5.17 $6,116
Caesar Salad 1,508 $5.50 $0.41 7.5% $5.09 $7,676
House Salad 2,041 $5.50 $0.48 8.7% $5.02 $10,246
Averages $5.50 $0.41 7.5% $5.09
Which menu item should be reviewed?
SALADS
If you would have chosen the ‘House Salad’, you would have reviewed the menu item driving the most dollars to cover fixed overhead costs and profit and possibly removing it from the menu.
Menu in place for 6 months.
Dog/Star Calculation
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitProfit
Total Profit $s
GM MM Rank
Chopped Salad 1,664 $5.50 $0.43 7.8% $5.07 $8,437 L H Plowhorse?
Wedge of Iceberg 1,183 $5.50 $0.33 6.0% $5.17 $6,116 H H Star?
Caesar Salad 1,508 $5.50 $0.41 7.5% $5.09 $7,676 H H Star?
House Salad 2,041 $5.50 $0.48 8.7% $5.02 $10,246 L H Plowhorse?
Averages $5.50 $0.41 7.5% $5.09
Which menu item should be reviewed?
SALADS
MM = (1/4) * .7 = 17.5%; GM = $32,474 / 6,396 = $5.08Flaw: Gross margin rank for dog/star calculation is based on unit level only, not extended contribution margin dollars.
Menu in place for 6 months.
Dog/Star Graph
$5.00 $5.02 $5.04 $5.06 $5.08 $5.10 $5.12 $5.14 $5.16 $5.18 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Popu
lari
ty In
dex %
(¼)
* .7
= 1
7.5
%
Menu Item Unit Gross Margin $s$32,475 / 6,396 = $5.08
17.5%
$5
.08
StarPlowhorse
Dog Puzzle
House Salad
Chopped Salad
Caesar Salad
Wedge Salad
Stellar / Cellar Graph
Menu Item Total Profit $s
Popu
lari
ty Ind
ex %
Stellar - The Bank• Sacred Items• Most Profitable Items
The Push or Sell• FOH Suggestive Selling• FOH Contests• Review price with value
proposition; price too high?• Quality or flavor issue
The Engineer• Reengineering of Menu Items• Labor Process Improvements• Alternative ingredients• Menu placement
• Price increase possibility
The Cellar• New menu item opportunity• Exception: Unique menu item
Stellar / Cellar Graph
Menu Item Total Profit $s
Popu
lari
ty Ind
ex %
Stellar - The Bank• Sacred Items• Most Profitable Items
The Push or Sell• FOH Suggestive Selling• FOH Contests• Review price with value
proposition; price too high?• Quality or flavor issue
The Engineer• Reengineering of Menu Items• Labor Process Improvements• Alternative ingredients• Menu placement
• Price increase possibility
The Cellar• New menu item opportunity• Exception: Unique menu item
Stellar / Cellar Graph
$2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 $11,000 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Menu Item Total Profit $s$32,475 / 4 = $8,119
Popu
lari
ty In
dex %
(¼)
= 2
5.0
%
$8
,11
9
25.0%
House Salad
Chopped Salad
Caesar Salad
Wedge Salad
The Stellar
The Engineer
The Cellar The Push
Cost Volume Profit Example
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitProfit $s
Profit $s
Chopped Salad 1,664 $5.50 $0.43 7.8% $5.07 $8,437
Wedge of Iceberg 1,183 $5.50 $0.33 6.0% $5.17 $6,116
Caesar Salad 1,508 $5.50 $0.41 7.5% $5.09 $7,676
House Salad 2,041 $5.50 $0.48 8.7% $5.02 $10,246
Averages $5.50 $0.41 7.5% $5.09
Which menu item should be removed?
SALADS
The proper item to target to be reviewed is the ‘Wedge of Iceberg’.
Menu in place for 6 months.
What are my options?
• Review the menu placement• Reengineer an existing menu item
• Review process• Alternative ingredients• Price increase
• Remove the item and create a new item
Engineering a New Menu Item
When engineering the new menu item, attempt to create the item that will increase the average gross margin on the item being removed. In this case - $5.17/menu item.
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitProfit $s
Total Profit $s
Wedge of Iceberg 1,183 $5.50 $0.33 6.0% $5.17 $6,116
New Menu Item - $TBD $TBD > $5.17
Menu Placement
When reading the menu, customers read from top to bottom of the category they are looking at. Place the menu items that drive the most contribution margin to the top. The two top menu items are my highest “The Bank” category items.
Menu Item Qty Sold
Menu Price
Unit Cost
Cost % UnitProfit $s
Total Profit $s
House Salad 2,041 $5.50 $0.48 8.7% $5.02 $10,246
Chopped Salad 1,664 $5.50 $0.43 7.8% $5.07 $8,437
Field Greens NEW $5.75 $0.43 7.5% $5.32
Caesar Salad 1,508 $5.50 $0.41 7.5% $5.09 $7,676
Averages $5.56 $0.44 7.9% $5.12
SALADS
Menu Placement & Eye Gaze
Source: Bowen & Morris, 1995; Hug & Warfel, 1991; Kelson, 1994; Scanlon,1998; Main, 1994; Miller, 1992; Panitz, 2000; National Restaurant Association, 2007;Kotschevar, 2008; Pavesic, D.V., 2011
Menu Placement & Eye Gaze
Source: Glazer, Emily, Wall Street Journal, “The Eyes Have It: Retailers Now Track Shoppers’ Retinas”, 07/12/2012, p. B1
Menu Placement & Eye Gaze
Source: Glazer, Emily, Wall Street Journal, “The Eyes Have It: Retailers Now Track Shoppers’ Retinas”, 07/12/2012, p. B1
Menu Placement & Eye Gaze
Source: Livingston, 1978
Menu Placement & Eye Gaze
ABSTRACT“Results offer an average menu scanpath … and suggests traditional menu “sweet spots” may not exist.”
Front of House (FOH) Sales
• If the menu layout is structured with the most profitable items on top, it should not be a secret!
• FOH personnel can play an active roll in suggesting to the customers items that drive profit!
Where do I start?
Step 1: Purchased Items
Step 2: Batch Recipes
Step 3: Serving Recipes
Step 4: Time Standards
Step 5: Labor and Overhead Rates
Step 6: Performance Benchmarking
Ingredient level only
Systems
• MBE (Manage By Excel)
• Systems & Software (do your research!)• Features (i.e. recipes, production,
ordering, • invoicing, menu engineering, etc.)• Service• Cost• Your overall plan (short and long
term)
Our Systems
The Top 10
Takeaways
The Top 10 Takeaways
Takeaway #1Ensure that your recipes costs are accurate before the menu
engineering process. Understated costs translates
to overstated profit.
The Top 10 Takeaways
Takeaway #2Use historic data combined with
pricing and costs to assist in future menu decisions. Data
should match day part in print.
The Top 10 Takeaways
Takeaway #3Your menu is too
important to guess at! Guessing is not good enough!
There is too much as risk.
The Top 10 Takeaways
Takeaway #4Separately printed menus
should be engineered separately. Engineer any
menu that is in print.
The Top 10 Takeaways
Takeaway #5Engineer sections of menu.
Do not engineer the complete menu in whole. Decisions should be made within menu categories.
The Top 10 Takeaways
Takeaway #6“You cannot place percents in
your pockets!”. Shift the focus from cost percents to
cost volume profit methods. Look at total profitability!
Money in the bank!
The Top 10 Takeaways
Takeaway #7Make decisions not only based on the passion and
emotion of the menu item – but also empirical data. Be
methodical.
The Top 10 Takeaways
Takeaway #8The menu layout and
placement of menu items does matter. Place higher contribution margin items
on top in descending order.
The Top 10 Takeaways
Takeaway #9This is your call to action!
Start the process. If you do not have adequate time or
skills, get some professional assistance!
The Top 10 Takeaways
Takeaway #10To ensure success – The bottom line is know your costs!Plan for success!
Be proactive, not reactive!
Cost Control
MENU ENGINEERING
ACCURATE RECIPE
COSTING
JIT Production & Ordering(Dynamic
Pars)
Benchmarking (Actual v. Theoretical)
Audit to Improve
Efficiencies
Results
• Quality• Consistency• Efficiency Improvements• Discipline• Cash• Profits
• Waste• Inventory Levels• Costs
Articles Booklet
• “Obtaining Accurate Recipe Costs”• “Improve Your Menu Engineering”• “The Case For Theoretical Food Costs”• “The Advantages of Just-In-Time”• “Robust Supply Chain Management”• “Line Checks That Create Efficiency”• “Traits of Effective Cost Management”
http://www.ReturnOnIngredients.com
Other Speaking Events
2013• Ohio Dominican University – 2/7 in Columbus, OH• Columbus Culinary Institute – 2/12 in Columbus, OH• North American Pizza & Ice Cream Show – 2/17 in Columbus, OH• Canadian Restaurant & Foodservice Association – 3/3 in Toronto, Ontario• International Restaurant & Foodservice Show 3/4-3/5 in New York, NY• Western Illinois University – 3/7 in Macomb, IL• International Boston Seafood Show 03/10 in Boston, MA• Nightclub & Bar Expo – 3/19-3/21 in Las Vegas, NV• Owens Community College – 4/4 in Toledo, OH• ODU Dominican Scholars Dinner – 4/15 in Columbus, OH • ACF Maumee Chefs Association – 5/6 in Findlay, OH• Western Foodservice Expo – 8/18 – 8/20 in Los Angeles, CA• Florida Restaurant & Lodging Show – 09/22 – 09/24 in Orlando, FL• World Congress of Nutrition & Health Conference – 10/12-10/14 in Dalian, China• Americas Food & Beverage Conference – 10/28 in Miami Beach, FL
Culinary Schools
This program is offered at no cost to culinary and hospitality schools programs based on availability and
budget.• Lexington College (Chicago, IL)
• Roosevelt University (Chicago, IL) • Western Illinois University (Macomb, IL)
• Lake Michigan College (Benton Harbor, MI)• Central Michigan University (Mt. Pleasant, MI)
• Guilford Technical Community College (Jamestown, NC)• University of Nevada Las Vegas (Las Vegas, NV)
• Midwest Culinary Institute (Cincinnati, OH) • Columbus Culinary Institute (Columbus, OH)
• Hocking College (Nelsonville, OH)• Owens Community College (Toledo, OH)
Please email me at [email protected] Or call me directly at Cell 614.558.2239
Questions & Answers
Mark Kelnhofer, President & CEOReturn On Ingredients
P.O. Box 2387Westerville, Ohio 43086-2387
614.423.4410Fax 614.340.7946Cell 614.558.2239
[email protected]://www.ReturnOnIngredients.comhttp://www.LinkedIn.com/kelnhofer