Improve Your Menu Engineering, by Mark Kelnhofer, CFBE, MBA

The term “menu engineering” is not used by all restaurants operators.  However, it is a definite process that all restaurants, single and multi-unit, should be utilizing.  The process of determining which items need to be removed or modified versus which one should be added to a menu can be a complex one.  Too often mistakes are made which can hurt the future profitability of the company.  In some cases decisions are made off of the passion and emotion that is involved with the menu item and not necessarily the numbers that are to assist the decision making process.  Even more important, which numbers are used.  Incorrect or incomplete analysis can hamper the ability to plan for profits.

                The accuracy of the recipe costs is important to driving the profitability of the menu(s).  Too many times the recipe costs are not accurately stated and can adversely affect the whole menu engineering process and operation.  In my interviews with many restaurant operators, the primary focus on menu engineering is quantities sold of an item and the cost percent per plate.  Although volume and the cost percent per plate is important, they should not be the only factors in the decision making process.  The view in this article is to look at engineering the profits of each menu item drive and not necessarily the cost percent on its own. 

                The first step of the process should be an analysis of the current menu specifically by price tier or markets and the type (lunch, dinner, etc.).  The analysis should be done on all core or printed menu items.  In order to determine what core menu items are to be removed, you will need to determine the gross margin per plate and extend that out by the volume to determine the contribution margin the item is delivering.  Obviously, you cannot remove a whole category.  However, the menu items that are driving the lowest contribution margin dollars for each category should be targeted for replacement. 

                Once we have determined the menu items to be removed, the next step is to take the newly designed menu items and compare the gross margins per plate for each item.  The goal to ensure that the gross margin dollars per plate does not decrease.  If the current menu item is replaced with a new menu item that results in lower gross margin per plate, you may be reducing the overall chances for improved profit.  If this decision is made, there will also be a need to increase the volume sold to make up any lost margin dollars from the change.  The goal should be to replace a current menu item with a new one that will improve the gross margin per plate.  Remember, this view of menu engineering is not to look at the cost as a percent, but the potential amount of profit that will be driven from the new menu item.

                Using accurate recipe costing as a base along with analysis of gross margin per plate, the restaurant location can make methodical decisions that can only assist in the improvement of the bottom line.  The method of looking at only cost percentages is flawed.  You cannot place percents in your pocket.  Concentrate on the amount of profit you are going to be generating.  In a time of a highly competitive marketplace, operators cannot make mistakes in decisions relating to the menu.  The menu is the pinnacle of what you represent.  All restaurant operators are in the business to make a profit.  Ultimately, the main goal should be to make a profit that can cultivate and grow the business.  Proper recipe costing and menu engineering decisions can propel you there.

Mark Kelnhofer is the President and CEO of Return On Ingredients LLC and has over 20 years in management accounting experience including over ten years in fine dining restaurant industry.  He can be reached at (614) 558-2239 and Mark@ReturnOnIngredients.com.

Vetting Cost Control Systems for Your Restaurant Operations, by Mark Kelnhofer, CFBE, MBA

            We have many challenges in operating and managing a foodservice business.  Whether a restaurant, catering operation, hotel, casino, so many other operations, we look to technology to assist in become more efficient and profitable.  Systems create more formalized process and control to increase the discipline of our operation.  Making decisions on any system is not an easy task and certainly we should spend some quality time conducting the proper research.  Here are some aspects to consider during the vetting process:

            Interfaces versus Exporting.  We participate in an industry that have available to us many different types of systems.  Think about all the technology that we have available with different purposes (see figure): labor management, catering, point-of-sale, back office, accounting, loyalty programs, and many others.  The issue becomes how the data we receive from the new system may or may not communicate to our existing systems.  There is no one system to manage all aspects of running the business.  An interface is a direct communication with other computers and databases.  There is a relationship that exists between systems.  The ability of exporting data from one system to another is not a direct interface.  It is a manual process to move the data out, possible reformat the data, so that it can be read by the receiving system.  This could take some time to do and you may have to do it frequently.  Ideally, true interfaces are what is desired.  When research and vetting any system, time needs to be spent to understand how the new system may or may not work with your existing systems. 

            Features and Field Vetting:  It’s one thing to vet features of a new system, but a whole another thing to vet the fields and structure of the database.  When reviewing any system, get into the details of each part of the database.  As an example, let’s review some of the data that you may want to have or know about on all purchased items for your operation:

• ·       Item description field length.
• ·        Limitations, if any, on the number of unit-of-measures (UOMs) per item.
• ·         General ledger coding and tax flags.
• ·         Flags to annotate retail product, gluten free, non-GMO, kosher, allergens, and catch weight products. 
• ·         Purchase specifications (i.e. size, color, grade, average weights, etc.).
• ·         Primary and secondary vendors identification.
• ·         Point-of-sale attachment if a retail item.

As you can see, if you don’t look at all the details of the fields and capabilities, you may find out post purchase instead.  Finding out about shortcomings after the purchase is not always the best experience.  The shortcoming may affect a feature critical to your operation.  There are so many aspects of a system that you may review as well: recipe cards and costing, physical inventories, banquet event orders, and so many others.  This requires more than just sitting in on a one hour demo by the sales representative. Your decision needs to be made on data.  The more research and vetting you do, the more satisfied you will be with the decision you choose. If the sales account representative wants you to make a decision based on an hour demo, walk away.

Involve The Team.  To make the demo and vetting a success, involve all personnel that will be affected by the system.  Identify any personnel whose hands are actually going to be touching the system and entering data.  They may have some questions that come up as a true user that may not otherwise come up during the demo. 

Maintenance Contracts and Customer Service:  Understand the terms for all other services under an ongoing contract.  It is not unusual that these contracts can last several years with a monthly subscription charge attached.  Not only should you understand the service, but also how it is being delivered or how it is accessible to you.  Support can be email, chat rooms, or live calls.  You need to understand how effective and accessible the support is as part of the decision making process.

Training Programs.  Training on the new systems is another critical area to vet.  Today there are so many methods and usually some additional costs involved, especially for live on-site training.  With live on-site training, you should anticipate travel and lodging costs as part of the package.  Training in some cases is conducted via webinar and not live.  Make sure to ask if there is a user’s manual available and if it is hard copy or in an electronic form.  This will allow you to possibly find an answer to an issue before contacting customer service for support.  In many cases, this alone tells you something about the company you are vetting.  If they have their systems and processes documented, you should become more comfortable about working with them as a vendor.  There will probably be some additional costs for their time to train your personnel, so anticipate it.  Review if these costs are based on the number of attendees or are the fees for total time spent. 

Sunk Costs versus Subscription Models.  When costs are discussed, we need to know the total purchase contract which includes subscription model services (standard monthly fees) versus those items which requires amount paid up front or sunk costs.  In most cases, the sunk costs, are those dollars going out the door for computer hardware and equipment up front.  The subscription model is usually related to the computer software use and in many cases hosting.  You should confirm how the subscription model is being assessed.  It could be based on each physical location or the total number of actual users on the software.  Identifying this could assist not only in your budget for the capital expenditure, but also potentially identifying who will eventually have access to the system.

Ask For and Contact References.  Don’t be afraid to ask for existing customer references.  One of the largest areas of opportunities is that exiting users are not being interviewed to get perspective on how satisfied they are with the product.  It is your opportunity to interview a true user of the product and you should take advantage of it.  A prospective vendor should be able to provide you several existing company names and contacts of existing users that are similar in size and operation.  If they don’t or cannot do this for you as a prospective client, a huge red flag has been raised. 

The vetting of systems is a critical juncture for any company and should be taken seriously.  In most cases, there is a substantial amount of invested cash at risk.  Due to this, there is a lot of emotion around the decision, before and after.  If the proper research and effort is not made, the cash that is dedicated to the purchase may not provide you with the return and efficiency that you expected.  At the end of the day, systems that you purchase should drive the bottom line. 

Mark Kelnhofer is President & CEO of Return On Ingredients LLC, a restaurant and foodservice consulting company which specializes in recipe documentation, recipe costing, menu engineering, and cost controls.  He has over 20 years  experience in managerial cost controls.  He is an international speaker have spoke at more than 110 industry tradeshows, associations, seminars, colleges and universities.  He has only published two books: Return On Ingredients and The Culinary Pocket Resource of Yields, Weights, Densities, & Measures.  Additionally, he is a lecturer for The Ohio State University instructing food, beverage, and labor cost controls.  He can be reached at 614-558-2239 or mark@returnoningredients.com.  

The Art of Recipe Writing, by Mark Kelnhofer, CFBE, MBA

          There is something missing in the restaurant industry.  The culinary and management teams have a strong passion for the menu items that they place on the menu.  They indeed spend a significant amount of time to ensure that the dish or drink has the proper flavor profile, quality and presentation.  The process is a true art.  Yet, there is a critical piece that in many cases is either incomplete or even worse, does not exist.  That missing piece is the art of recipe writing.  Too many cases, the proper documentation for what we are all about is either incomplete or missing all together.  The operators that do not have the documentation in place are the ones that may struggle or even worse fail. 

            Documented recipes provide so many benefits that it is important to understand why they are needed.  Recipes first provide a standard that is expected every time it is executed.  The recipe ultimately becomes a training tool not only for new employees but to also ensure quality and consistency with all employees.  Consistent performance of the recipe is critical and the documentation becomes the standard that all live by.  Recipes also become the means of how we identify the costs.  Without a complete recipe, you cannot identify the cost.  A simple review of the completeness of the recipes can tell you so much.                                                                                          

            Recipes are more complicated that some imagine.  There is quite a bit that can be maintained on a recipe depending on how much detail you desire.  The more detail, the better the standard becomes.  Let’s first look at what we would call the header information.  This is the general information regarding the recipe including the title of the recipe, prep times, cook times and the yield of the recipe.  Although this seems basic, in many cases the most important piece of data that goes undocumented is the yield of the recipe.   The yield plays an important role not only in determining what the end result of the recipe is but is it also needed to determine proper costs and to account for any associated processes and losses. 

            Documented ingredient line items need to have greater detail too.  In many cases when recipes are written, the ingredients are documented very generically.  As an example, a recipe will have an ingredient called ‘tomatoes’.  When looking at the produce order guide, you will see many variations of tomatoes that are being purchased (i.e. roma, heirloom, pear, cherry, beefsteak, green, yellow, etc.).  By being documented generically, not only are you not able to communicate the proper standard, you also cannot assign the proper cost. 

            Another ingredient level mistake that is made is documenting the processes.  Let’s say that the line item that is listed states “diced tomatoes”, now we have two issues.  The first, of course, is what type of tomato is being used.  The second is who is actually dicing the tomatoes.  If we are dicing the tomatoes in house, we need a recipe to account for the process and possible loss.  Too many times internal processes go undocumented.  Although it may be a simple process (i.e. dicing tomatoes), we need a recipe to account for the loss and time it takes to process the ingredients.  Although it may be a simple process and a recipe may not be needed for training personnel, it is needed for costing.  Think about all the processes that are conducted internally where we may want to account for the process: blanching, dicing, chopping, julienning, thawing, etc.  If is purchased pre-diced, then we need to identify that as well.

            As an effective training tool, the recipe must also have a method or how the recipe is executed from start to finish.  Ideally, the ingredients should be listed in the order used and the method should match the process.  Without a documented method, the recipe cannot possibly become an effective tool to train and create a standard to abide by.  The methods become a critical part of standardization, quality control and consistency.  It is important that they are documented well and match the process. 

            Writing a recipe with portion control tools is very common and should be used.  One missing component is the effect is has on costing.  In many cases recipes are writing utilizing various utensils (i.e. cup, tablespoon, teaspoon, spoodle, etc.) but the quantity of product is not identified.  The density of the product comes into play.  A cup of basil does not weigh the same as a cup of granulated sugar.  For costing we want to identify what the proper amount of the ingredient is being used.

            There are many other aspects of recipe maintenance that create greater detail to the above areas such as identifying the tools and equipment, storage instructions, food safety, pictures, and with systems, training videos.  There are many aspects to a properly documented recipe and the details matter.  The recipe becomes an integral part of what the business is all about.  Unfortunately, too many times the recipe is either incomplete or missing altogether.  It facilitates training, creating performance standards, and ultimately is the necessary tool for costing and the menu engineering process.  Yes, the creating and passion for food is an art.  Writing a recipe is an art as well.  Without the documented recipe, the business will not have a critical piece to succeed.  The recipe ultimately affects the success and profitability of the company. 

Mark Kelnhofer is the President and CEO of Return On Ingredients LLC and has over 20 years in management accounting experience including ten years in restaurant industry.  He is an international speaker on recipe costing and menu engineering.  He can be reached at (614) 558-2239 and Mark@ReturnOnIngredients.com.