The menu is key to marketing for foodservice operations. Customers, and the revenue they generate, are attracted or alienated by the menu. For example, a menu that offers high priced exotic items may not be successful for a restaurant located in an industrial business park. Nor may a menu offering a lot of fried items be for a university women's residence cafeteria. The menus must be targeted to the needs/expectations of sufficient numbers of customers that will ensure revenues needed for the organization to succeed and grow.


Central to a marketing strategy is the identification of the types, characteristics and trends and numbers of potential customers. The Marketing Strategy refers to this as the target market. Analyzing historical and trend data. Population densities by area, age distribution, income, family structure, education level, ethnic origins, types of housing, etc. as well as expenditures on food, restaurant eating, types of foods and establishments selected and lifestyle characteristics can enable the analytical menu planner to develop menus that appeal to the targeted customers. Information collected through past sales, seasonal variations, trade journals and personal observation/experience is also important.

Competition analysis is part of the internal and external environment of the Marketing Strategy. Knowledge about the numbers and types of foodservice operations as well as their menus and prices enables the menu planner to determine areas for menu niches (unique aspects) or specialization in order to attract or target specific groups or segments of the total customer or market area. If there are multiple operations with similar menus, there is a danger of market saturation where the new foodservice operation would not be successful or where existing operations would not realize profit potential.

An efficient way to analyze competition is by creating a matrix or table of the competitors in an area and their characteristics.

The influences of the target market and of competition on menu planning were discussed. The relationship of these two components to the Marketing Strategy Model was also identified. In this Section the influences and/or limitations of organizational goals and human and physical resources are explored. These are also components on the external and internal environment of the Marketing Strategy.

Whether the menu is being redesigned for an existing foodservice operation or for a new establishment, many factors regarding the organization and its resources must be analyzed. The text refers to this as "know your restaurant".

ORGANIZATION GOALS

The menu must reflect the goals or overall purpose of a foodservice organization. Marketing strategy objectives should clearly state the goals in numerical terms so that the menu, prices, service styles, presentation and décor can have clear direction. Menus that seem unfocused or try to serve too many customer groups may end up appealing to no one! Reflect on a foodservice organization that you are familiar with and try to determine whether the menu interprets the organizational goal or purpose. If not, what changes in the menu and/or goals would you recommend?


INGREDIENT AVAILABILITY

Careful menu planners should avoid using too many seasonal items or hard to get items that may be part of ethnic menu items. Otherwise the menu becomes difficult to deliver to customers, resulting in disappointment, and is potentially expensive for the organization, due to substitutions.

CROSS UTILIZATION OF INGREDIENTS

Making the best use of raw ingredients for multiple menu items, such as variations of hamburgers, will control the numbers of items in inventory and the potential for waste.

COSTS OF PRODUCTS AND PRODUCTION

Prices of menu items should be directly related to what customers are willing to pay. In turn, costs to prepare and serve menu items are dependent on these prices and demand (revenue) as well as desired profit margins. In the section on pricing and evaluation this will be discussed in more detail. It is important to note however, that menu decisions relating to profitability should be made on the overall menu mix rather than the food and labor costs for individual menu items.


EQUIPMENT AVAILABILITY AND CAPACITIES

Menu planners must ensure that the foodservice operation has the necessary equipment and that the equipment and work stations have the capacities for the variety and/or volumes of menu items. This also illustrates the relationship between determining customer demand for particular menu items and the limitations of the organization. As a young and inexperienced foodservice manager I learned this lesson the hard way when I put baked stuffed potatoes on a menu. As the ovens were also needed for the baked dessert and main entrée, the capacity to handle the demand for this popular menu items was inadequate. As a result, undercooked potatoes and long waits made for many unhappy customers!


PRODUCTION FLOW

Production should flow from receiving through to service without backtracking to ensure time efficiency and product safety (no cross contamination of finished items with raw ingredients or equipment). Evaluate the production flow in your kitchen as per Figure 2.6 of the text. What improvements would you make?


STAFF SKILLS AND CAPACITIES

This refers to the abilities of the production, service and management staff to produce the complexities and volumes dictated by a menu. Remember that the written menu is a preview that the served meal must live up to! A number of hotel and restaurant kitchens now purchase outsourced or ready to serve menu items to reduce labor costs and to ensure a standard quality product. Without more thoughtful menu planning to find a compromise between labor costs and quality menu items, we risk a decline in the numbers of skilled chefs.

  Menu Presentation

A menu can be like watching a preview of a great movie. The more we are exposed to a variety of foods and creativity in descriptions, the more we expect that the menu writers of the restaurants we visit will be able to express their enthusiasm for their products though creative, truthful and descriptive menu items. Before menu writers can let their creativity and enthusiasm flow, they must consider numbers and types of categories, variety, descriptive terminology, legal restrictions and layout.

Categories refer to the groupings used for menu items such as appetizers, soups, salads, entrees, side dishes, sandwiches, desserts and beverages. The number of categories reflects the style of service, the complexity of the menu and price ranges customers are willing to spend. The categories selected for the menu also represent the menu pattern or outline for the menu. Consider a menu you are familiar with. Do you think the number of categories is appropriate? How many items are listed under each category and are they appropriate?

Variety and balance or menu aesthetics refers to the choices within the categories as well as plate or meal composition. Menu categories or compositions that offer foods of similar temperature, cooking method (all fried for example), texture, shape, size or color will not be appealing. Creativity and an ability to visualize what the actual food/meal presentation will look and taste like should guide the skilled menu planner in developing an appealing menu.

My husband recently ate at a "pricey" golf resort in Ontario. He and the others in his group laughed at the preponderance of asparagus on the menu - everything seemed to feature this vegetable that few liked - and the number of appetizers, entrees and desserts that seemed to be "wrapped". The message from this example is to be careful about relying on one ingredient or method!

Descriptive terminology refers to the word pictures created by the menu item names and descriptions. For example would you rather have:

and which menu items would you be willing to spend the most on, even though they are the same foods?

Ensuring that customers know what they are ordering is important, as many customers will avoid an item that is unfamiliar and will be reluctant to ask for clarification. For example:

Related to the use of descriptive terminology is accuracy or truth in menu writing. With the increase in numbers of persons with allergies, accuracy in reporting ingredients and controlling substitutions has taken on even greater importance. An example of this would be a customer, with an allergy to tomatoes and other citrus fruits, who orders chowder at a restaurant after reading the description in the menu and receiving assurance from the server that tomatoes were not an ingredient. However, unknown to the server, one of the cooks had decided to toss some leftover tomato paste into the chowder "to give it some color". The customer eats the chowder, subsequently experiences a non-fatal allergic reaction and sues the restaurant!

Often the cover, layout and printing style of menus is dictated by cost of design, art work, printing and anticipated frequency of menu changes. However, the visual appeal of the menu is important for promoting sales. Have you ever been turned off by a stained menu with a number of crossed out items or penciled in changes? What message does this send about the efficiency and cleanliness of the foodservice organization?

Wine sales represent the fastest growing segment of alcoholic beverages. To enhance merchandising, menu planners should consider recommending wine choices with entrees and desserts on the menu or identifying types of entrees that particular wines complement on the wine list.
Lettering and artwork should not detract from the menu content. The lighting and visual acuity of your customers should guide you in the style and size of type. Artwork placed at the focal point of the menu can detract from the goal of the printed menu - to market and sell menu items! For example what style and font would be most suitable for a downtown hotel dining room?:

There are many examples of good and bad menus and an analysis of them considering the points discussed here and in the text will develop the ability to design the look of a menu as well as this content. The menu planner who develops the content should take an active role in the final look of the menu and not pass this task on to someone who may not be familiar with the clientele or the organization. Remember that the menu's appearance is an important promotion tool for the food service organization's marketing strategy.



Menu Pricing

The main objectives in pricing the menu are to meet financial goals, positively influence value perceptions and to increase sales and market share. Meeting financial goals refers to ensuring that expenses are met and that desired profits are made. If this were the only objective it would be relatively simple to achieve; determine item costs, add a percentage for desired profit and this would be the selling price. However it doesn't consider the effects of prices on customer demand, the numbers of items sold or the effects of sales mixes (combinations of menu items).

Prices influence value perception and enable foodservice organizations to differentiate themselves from competitors. Customers expect to pay more for similar menu items at restaurants with good reputations and fancy décors. This also helps us understand why customers are not willing to pay the same prices for similar menu items at hospital cafeterias that they pay at a restaurant down the street.

Price is one of the marketing mix elements in the Marketing Strategy. It is important to know how customer demand is influenced by prices. This is referred to as price elasticity of demand or the ratio of the percent change in demand caused by a change in price. In others words, will numbers sold or customers served change directly if prices are lowered or raised. In actual practice there is rarely such a direct response to prices. Knowing the limits of price inelasticity of demand or how much you can sell items for without negatively affecting demand will enable managers to maximize sales and profits. Experience and market research will guide menu pricing in this regard.

Market share refers to how much of a total market or potential number of customers an organization can share with their competitors. This is why competitor analysis including price comparison is done. A competitor who makes a menu price reduction that is perceived as significant by customers can capture some of your market share. Managers know how difficult it is to regain lost market share so it is important to maintain customer loyalty.

It is a careful balancing act to meet these objectives. A combination of rational and psychological pricing approaches is usually required in combination with regular evaluation of the effects of prices as well as other factors on profitability and popularity of menu items.


RATIONAL PRICING METHODS

This includes market research, and cost based or mathematical methods. Essentially menu development, including pricing, must start with market research about customers and competitors. There are many cost based methods but few are used.

The cost based methods use item or meal costs as well as budget or actual income statement figures/ percentages. Many methods attempt to make item selling prices reflect the structure of the desired or budget income statement. The belief is that if each menu item sold parallels the budget income statement then financial goals will be achieved. The fallacy is that without considering the effect of prices on customer demand, the potential for total sales will not be achieved. For example, if menu items are priced to achieve a desired food cost percentage of 30%, this goal will be met but the 30% may only be based on achieving 50% of desired sales! It would be better to have 40% of 100% of desired sales!

The Factor and the Markup on Cost methods are the same except for the calculation steps. Both use the desired or budget food cost percent and the meal or item cost. The Factor method divides the desired food cost percent into 100%, representing the total sales. The factor that results is the multiplier that reflects the remaining costs and profits of the income statement. For example a number of organizations will multiply their item food costs by 3 to arrive at their selling price, where 3 represents a desired food cost of 33.3%. Similarly, a multiplier or factor of 2.5 represents a 40% desired food cost. The Markup on Cost method skips the factor calculation and divides the meal or item cost by the desired food cost percent. These are easy to use methods and effective when used in combination with market research and psychological methods. Because these methods do not use the item or meal labor costs, items that are labor intensive but with lower item food costs may not recover their share of expenses and profit when sold. Items that have high food costs such as outsourced items may have selling prices that are perceived as unfair if an overall Factor or Markup on Cost method is used.

The Gross Markup method, also referred to as the Contribution method, attempts to make each menu item an equal share of the Income Statement gross profit (dollars remaining from total sales once cost of sales or food sold is subtracted). The gross profit pays for labor and other expenses and the amount remaining is profit. This is also a very simple method, assuming that numbers of customers is known or anticipated accurately. The danger is that if customer numbers change the prices will not enable the organization to achieve its financial goals. This method also assumes that each menu item will require similar labor and other expenses to produce.

The Ratio method is similar to the Factor method but uses a different approach. Using whole numbers from the income statement or budget, the gross profit is divided by the cost of food sold. The resulting ratio then has 1.00 added to it (to add back the cost of food sold). The item or meal cost is then multiplied by this ratio to determine a selling price. Using whole numbers for calculations is a bit risky since the more numbers used the greater the chance of calculation error. However, this is an efficient calculation method since the numbers are readily available; but it carries the same potential problems if solely used, as discussed above.

The TRA method is similar to the Markup on Cost method as it uses the percentages from the income statement or budget. It works backwards toward the desired food cost percent by subtracting all other expenses and desired profit from 100%. The meal or item cost is divided by the desired food cost percent, as in the Markup on Cost method.

The Actual Prime method can provide a more accurate meal or item costing, assuming accurate labor costs per meal or item are known. I once worked for a large foodservice organization that used this method. Considerable time and expertise was required to time the production of variable batch sizes of items to arrive at the standard labor times. When these times were multiplied by an average labor rate, labor costs per item were determined. Average labor costs for management, procurement and cleanup were also applied. Once the labor cost is known, either the Factor or the Markup on Cost method may be used, as is illustrated in the pricing exercise assigned below. The time, expertise and financial resources required to determine the standard item labor costs may not be practical in many organizations. However, the benefits of being able to provide prices that are perceived to be more accurate than those based on item food costs for customers, and to monitor labor costs at a meal or item level, may outweigh the costs of developing this method in a large organization.


PSYCHOLOGICAL PRICING METHODS

There are number of psychological or irrational methods used to price menu items. Often managers will say they are using instinct or "gut feel", but many of these methods have a basis in marketing and have been studied by researchers. The Reasonable pricing method is based on the manager placing him or herself in the position of the customer and asking, "If I were a guest, what price would I consider reasonable to pay?" Experience with customers and experience as a customer is important when setting prices. The Tradition method is based on the manager considering how the competition tends to price items or what the market leader establishes for prices. The Loss Leader method sets unusually low prices on items to attract customers who will, hopefully, select other higher priced items once they are in the establishment. There are many examples of this, such as "Wing Nights" or "Free Coffee Refills".

Magic Numbers are pervasive in our market culture. They include odd cents pricing or ending prices in 3, 5, 7 or 9. It has been said that magic numbers have their foundation with the Macys's Department Stores where it was thought that odd cents would discourage employees from stealing as it was more difficult to do mental math with odd versus even or rounded numbers. Prices ending in 9 or 5 were said to give customers an illusion of a discount, as they would get change back. The higher the price, over $7 for example, the greater the "discount. This is why you will see prices ending in 9 up to $6.99 and ending in 5 after this point. Since the first number in a price is more significant, customers perceive that the difference between $79 and $81 is greater that it is between $77 and $79. The number of digits in a price also affects perception and $99 is more popular than $100. It is often a good idea to adjust prices by these psychological methods.



Menu Analysis

Menu analysis is the systematic evaluation of a menu's cost and sales data to identify opportunities for improved performance. There are a number of methods for analyzing the popularity and profitability of menus. Menu Engineering compares the contribution margin and the menu mix percent (%) of each menu item to the average contribution margin and desired menu mix % determined from all comparable items on the menu. Developed by Michael Kasavana and David Smith in 1982, it has slowly gained acceptance in the hospitality industry. I believe that in 1982 it was ahead of its time as managers did not have personal computers or the technical abilities. The booming economy of the time also did not require fine tuning of menu costs and sales mixes. There is now a growing interest in menu analysis and Menu Engineering and it is important for all chefs and cooks to be familiar with the technique and the use of the information provided for menu improvement decision making.

Recently, I conducted a research project to determine if menu analysis could improve decision making and also to determine the most effective menu analysis method for institutional foodservice. It was found that when menu decisions were made without menu analysis, only one area of information, either sales data or cost data was used, not both. Foodservice managers made decisions that were different from the menu analysis as they were not considering all the information. It was also found that Menu Engineering was more easily interpreted by managers and staff.

Some terms used in Menu Engineering need to be clarified. Contribution margin (CM) is defined as the amount of revenue remaining once variable or direct expenses are accounted for. This money can then contribute to fixed costs and profit. In Menu Engineering, it refers to the difference between revenue and cost of sales and is therefore the same as the gross profit.

Menu Mix (MM) % refers to the percent of numbers sold per item as compared to the total sold for the menu items being analyzed, usually within a menu category. For example if the total number of entrées sold was 100 and of that Filet of Sole sold 25; the MM % would be 25%. To further complicate this, Menu Engineering recommends that 70% of potential performance be set as the desired MM %. For example, if there were four menu entrees with the same total numbers sold as above, it would be expected that each menu item would sell 25% to be considered "popular". This may an unrealistic hurdle to cross. The 70% rule means that instead of 25% in this example, 17.5% is the desired MM %.

Menu Engineering uses a matrix approach. This means that the menu items are evaluated on two variables and can be classified in four categories. These categories are:

The advantage of the matrix approach and the "catchy" names is that it is easily interpreted. A server will soon understand that a "puzzle" should be promoted more and if sales on this item increased above the desired MM % it could become a "star"!

Menu Engineering requires four pieces of information: menu items, numbers sold in a four week time period, item selling prices and item food costs. The item food cost must be accurate and current. It is necessary to have standard recipes with current costs. Ideally, the menu item costs will correspond to the same time period that sales are being analyzed. This is the distinction between standard and ideal food costs.