Cost Control & Menu Engineering

If you have a business in the food service industry, you may have heard of the term ‘food cost’ and/or ‘beverage cost’.  If you haven’t, you could be missing out on some key indicators to control your business’ costs and optimize your profits.

The food cost and beverage cost are key tools that indicate the relationship between the costs of the food/beverage usage in comparison to the turnover created.

Costs should be reduced to the absolute minimum at all time.  Not handling your costs, or in other words, not purchasing the right goods, at the right time, for the right price, will cost you money.  It will give the competitors who do have an effective cost control system in place, a big advantage.  Fortunately, we provide this service.  

Food and beverage cost controlling can be applied in different types of businesses.  In restaurants, catering companies, hotels, coffee bars, tearooms and many more.  

The cost of goods sold is a relatively simple equation but can be a powerful tool to help you decide what you buy and how you sell it.

Menu engineering is the practice of analysing your menu to identify the items that sell well with a good cost percentage, the items that don’t sell as much as they should and items that sell but have a high cost percentage.  To maintain a competitive edge, you will want certain items on your menu that you know have a high cost but the secret is to sell it for what you can get away with.  Likewise, there will be menu items that you know are very popular and high sellers and these are the items that you need to ensure the cost is low enough without diminishing the quality so that your total overall margins are maintained.  It’s essentially a balancing act.

We look at the full menu with their recipes to determine the costs, look at your sales mix data from your point of sale systems and produce a report to go through these ‘plowhorses’, ‘puzzles’ and ‘dogs’. 

Plowhorses are items that, though popular with customers, provide a low contribution pargin per item.  They should generally be kep on the menu, but you should try to increase their contribution margin without affecting demand.  Raising their prices is one way to do this.  Another way is to review the recipes and purchase specifications with the objective of decreasing the cost of the ingredients or reducing the portion size.  

Puzzles have a higher than average contribution margin but lower than average popularity.  They are profitable items but do not sell well.  Possible reasons for not selling are that their prices are too high, their quality is not satisfactory, or that they are just not suited to the restaurant’s customers.  They should generally be kept on the menu, but you should try to increase demand for them by renaming them, making their menu descriptions more appealing, or relocating them to a more favourable position on the menu.

Dogs have lower than average contribution margin and lower than average popularity.  From the restaurant operator’s point of view, these are generally the least desirable items to have on the menu.  If their contribution margin and/or popularity cannot be increased, these items should be replaced with new and more popular items that also have a higher contribution margin.

We will help you review recipes, make suggestions on menu descriptions and advise you on pricing where applicable.