Increase restaurant profits with theoretical food costs and menu engineering
by Greg Staley, CEO of Synergy Suite
As inflation soars and food prices remain high, restaurants need to be more intentional with their menus to maximize profits.
In a recent survey, 90% of restaurateurs say their food costs are higher now than they were before the COVID-19 pandemic, and only 25% of operators think their restaurant will be more profitable this year than last.
As inflation soars and food prices remain high, restaurants need to be more intentional with their menus to maximize profits. Operators should implement theoretical food costing and menu engineering to reduce costs and increase profits.
Menu engineering, the study of profitability and popularity of menu items, aims to increase profitability per guest. As part of this effort, operators determine which of their menu items generate the most sales and profits. Then they highlight the items with the highest profit margins, work to improve (or eliminate) underperforming items, and replace expensive items with less expensive options.
Now that every penny counts, operators would be advised to:
- Ditch manual processes. Manual processes are time consuming, imprecise and error prone. It is extremely difficult to notice price changes in real time when using spreadsheets or paper systems. And, if you notice a price increase on a single ingredient, you’ll have to manually go through and adjust your calculations for each recipe that uses that ingredient. Who has time for that? Bottom line: It’s not wise to make financial decisions based on instinct or to rely on estimates on scrap paper that may not be accurate or up-to-date.
- Use technology for more transparency. It’s much easier, faster and more accurate to use technology tools to organize, track and manage food costs and profitability. Theoretical recipe tools allow you to adjust quantities or ingredients to determine how these changes affect your product margins. They offer accurate information on all purchases, prices, inventory, and food waste, allowing you to see and review more accurate data. Technology tools are instrumental in tracking food costs, changes, and trends so you can make better purchasing decisions.
- Consider actual food costs versus theoretical costs. Increasingly, operators are moving from basic feed cost calculations to more complex reporting, such as actual versus target feed costs (AvT). This effort examines the difference between the costs should have been in a specific period with what they were actually. There will be a discrepancy between these two numbers for a variety of reasons, including inconsistent portions, kitchen waste, or employee theft. Tracking the difference between your actual and theoretical food costs lets you see where you’re wasting money so you can adjust accordingly.
- Measure profitability and popularity. Catering technology makes it easy to assess and refine your menu. Reports and dashboards provide real-time data on your best and worst sellers, plate costs, and more, allowing you to make data-driven decisions about which items to keep, replace, or eliminate to reduce costs and increase profits. Digital The tools can automate your food cost calculations, invoices, price fluctuation reports, and more, so you can keep your best — and most profitable — items front and center.
- Determine plate costs. Operators can use digital tools to review their recipes, inventory and prices, then generate the final cost of each recipe. Although recipe costing can be done using a spreadsheet, this manual approach is difficult to maintain because prices are constantly fluctuating and recipes often change over time. It is much more efficient to use a numerical system that automatically updates ingredient costs based on the most recent supplier price and other factors for more accurate calculations.
- Improve inefficiencies. Use the data collected through digital tools to identify – and improve – inefficiencies. Maybe your data shows that over-portioning is a problem. In that case, use a recipe management system to keep portions smaller and minimize waste. If food spoilage is an issue, revamp your inventory management process and review historical sales data to order exactly what you need for a given shift.
- Improve your inventory management. Inventory management of pens and paper is time consuming and imprecise. Instead, use digital tools to monitor what ingredients you have on hand, what you’ve used, what you’ve ordered, and what’s left to use for the next day’s dishes. Using technology tools to manage your inventory helps you make better use of each ingredient, saving you money and increasing your profit margins. Tracking inventory also helps reduce waste. One of the most effective ways to reduce food costs (and unnecessary expenses) is to avoid buying items you don’t need. Use historical and forecasted sales and inventory data to determine what to order (and what ingredients you have on hand) for smarter spending and reduced waste.
- Rethink your menu. Menu Psychology Strategies help convince your guests to order certain items. Use specific menu placement, engaging descriptions, and strategic pricing (like $9.95 vs. $10) to boost sales and promote certain dishes. Strategically showcasing and promoting high-yield items can help encourage customers to order your most profitable dishes. Also, write compelling menu descriptions to inspire customers to order certain meals. Describe the dish using tantalizing words like rich, creamy, fresh, and delicious. Make a concentrated effort to push articles that have a high margin but less popularity. Replace expensive items with less expensive substitutions to increase profit margins and track the performance of the newly adjusted dish.
- Forecast sales. Conduct regular forecasting efforts, reviewing historical data and sales patterns to forecast future trends. When operators have a better idea of what to expect, they can make better decisions about the appropriate quantities to order, prepare and cook. This effort also helps them make smarter scheduling decisions to ensure enough staff for busier shifts and fewer employees working during expected slower times. Armed with this knowledge, operators can save a lot of money on food and labor costs.
- Educate employees on reducing food costs. Make financial health part of your corporate culture. Operators can use all the right technology tools to make smarter decisions, but if all staff aren’t aligned in this effort, you won’t maximize success. Ensure all staff are working proactively to reduce food waste by portioning correctly, using first-in/first-out efforts, reallocating leftovers, ordering correctly, etc.
- Track the impact of your efforts. Use digital tools to monitor your sales data to see how your efforts are moving the needle. Did your underperforming dishes become more popular after promoting them? Are customers still ordering items even after you’ve swapped out cheaper ingredients? Keep tracking your sales, profitability, and food costs and adjust your tactics as needed.
Working to control expenses and maximize profits should be an ongoing effort. Trust digital solutions to gain critical insights into food costs, price fluctuations, and other variables to minimize food costs and maximize your restaurant’s profitability.
Greg Staley is the CEO of Synergy Suite, a back-of-house restaurant management platform. Greg focuses on facilitating better visibility and increased profitability for restaurant chains through the use of smart, integrated technology behind the scenes. For more information or to discuss SynergySuite solutions, please contact Greg at firstname.lastname@example.org.