Pricing and Designing the menu

Chapter-4
3rd January 2022
 Topics
• Importance of Menu
• Menu content
• Menu pricing
• Pricing methods – Factor / cost multiplier method
• Measuring menu strength – Average Check, Range, Menu Scoring, Menu
Engineering
• Menu design – Cover, Materials, Placement, Menu Description, Typeface,
Verbal Pictures
 Introduction
• A menu is a list of food and beverage items served in a food and beverage operation.
• It can be printed on paper, written on a chalk board, displayed on a sign behind the
register, etc.
• The menu is the basic game plan for the restaurant and a tool used to meet the needs
and wants of a customer.
• The menu expresses the concept and theme through the choice of foods on the menu,
the prices, and the design of the menu itself.
• The menu serves as a type of contract between the foodservice establishment and the
customer.
• Consumer groups, governmental regulatory bodies, and even industry self-regulatory
bodies ensure that what is seen on the menu is what the customers get on their plates.
 Parts of the Menu
• Appetizers
– Small portion of food served before the meal to stimulate the appetite
– Also called hors d’ oeuvres
• Soups
• Salads
• Entrees
– Main Course of a meal
• Side Dishes
– A portion of food that goes with the entree
• Desserts
• Beverages
 Importance of Menu
• It is a contract with the customer, an indication that what is
described on the menu is what will be delivered to the customer.
• The menu should identify the name of each dish, major
ingredients & cooking method.
• It is essential part of the marketing effort.
• Properly priced, designed & presented can increase the average
check boosting sales of specialty items while complementing the
overall atmosphere of the faculty.
 Menu Design
• First impression is always important, the entire menu should
complement the operation
o Theme
o Interior Décor
o Design (Merchandising)
o Creativity
o Material
o Color
o Space
o Type style and lettering
o Name of food Item
o Description
o Popular items are at the top of a list
o Clip-0ns, Inserts (Daily specials)
o Operational address
o Beverage service notice
o Separate menu
 Menu Content
• The research indicates a number of menu trends:
i. Health conscious consumers
ii. Low-crab items (low in carbohydrates) in menu
iii. Demands for local product & organic items
iv. Wine, bottled water, specialty coffees & iced tea growing
popular.
• Full-service operators report increasing orders of Entrée salads,
Vegetarian salads, Side salads, Side Vegetables & Side fruits.
 Menu Content
The content of food menus varies with the type of menu, the
segment of the market it is aimed at, the occasion, the food cost
available, the country or region, etc.
• Table d ’ hôte menus are often of three to four courses only.
• A’ la carte menus often differ for lunch and/or dinner periods,
although it is not uncommon for the same à la carte menu to
be offered throughout the day.
 Menu Content
• Consumers are becoming more adventurous in food & wants to try
I. Ciabatta
II. Naan
III. Tandoori
IV. Empanadas (made by folding dough or bread with stuffing consisting of
a variety of meat, cheese, huitlacoche, vegetables, fruits, and others)
V. Falafel (deep-fried ball or patty made from ground peas, beans, or
both)
VI. Goose
• Larger Bolder type than the rest of menu
• Longer description
• Concept of Closure
– people’s eyes are drawn to what ever is enclosed by a box
• Color, illustration, and/or pictures, bullets can be used to
draw attention to signature items.
 Menu Pricing
A la carte – Every food and beverage item is ordered and sold separately
• Common in cafeterias, delicatessens, and many fine dining restaurants.
Table d’hote – A complete meal is offered at a set price, also called fixed
price
• Common in buffets and very fine dining restaurants
Combination – Some food items are priced and ordered separately and
other food items are grouped together and priced as a group
• Common in full service restaurants
• Appetizers, beverages, and desserts are often sold separately and entrees are
priced with side dishes and or salads
 Menu Pricing

• The pricing of items requires a knowledge of both marketing &

accounting.
• This means price must be competitive & must contribute to profitability
of operation.
Pricing Philosophy
Three common approaches to pricing involves the following:
1. Demand-oriented/perceived-value pricing
2. Competitive pricing
3. Cost-oriented pricing
 1. Demand-oriented/perceived-value pricing
• It looks at the menu from viewpoint of the customer & prices relative to what the
item is worth to the customer-its perceived value.
• The perceived value in the mind of the customer has to do with more things than
items on the plate.
• People expect to pay more for dinner than lunch, more for full service than self
service, more for inviting atmosphere than austere atmosphere, more for brand-
name fastfood chain than independent restaurants.
• Two common approaches in demand-oriented pricing are:
i. Market Skimming:
• In this approach, the operators use a relatively high price to attract or skim a small
segment of market.
 Continue
• This philosophy works when there is large potential market who can & will
pay higher, the competition is unlikely to undercut the prices of similar
product & when customer perceive the value of restaurant experience is
greater than price charged.
ii. Market Penetration:
• It involves setting price as low as possible while still contributing to profits.
• Lower price will create a loyal customer with greater sales & long-term
profitability.
• It works best when demand is price elastic: i.e. when price change results
in greater change in demand & vice versa.
 2. Competitive pricing
• It establishes price according to those set by the competition.
• The major drawback is it allows the competition to control
the pricing.
• It is not advisable to compete principally on the basis of price
because price is a factor that can readily by met by a strong
competitor.
 3. Cost-Oriented Pricing:
• It is the oldest & still the most common method.
• Prices are set on the basis of the costs incurred by the
operation.
 Menu Pricing
• Odd-Cents pricing
– Majority of prices end in either a “5” or a “9”
• Price rounding.
– Within certain price bands, price increases have little negative impact
on customers
• Placement
 Price placement
BAKED CHICKEN BAKED CHICKEN
Tender pieces of chicken breast Tender pieces of chicken breast
$8.99 Eight dollars and ninety nine cents

LEMON SOLE LEMON SOLE

Baked Chicken……….$8.99 Fresh filets sautéed with lemon
Lemon Sole………….$11.99 caper sauce
Lamb Steak………….$12.99 $11.99
Swordfish Steak…..… LAMB STEAK
$14.99 Center cut of lamb served on a
bed of rice
$12.99
SWORDFISH STEAK
Charcoal grilled served with
beurre blanc $14.99
Fresh filets sautéed with lemon
caper sauce
Eleven dollars and ninety nine cents
LAMB STEAK
Center cut of lamb served on a bed
of rice
Twelve dollars and ninety nine cents
SWORDFISH STEAK
Charcoal grilled served with beurre
blanc Fourteen dollars and ninety nine
cents
 Consider the following factors...
• Prices that are too expensive result in a lack of clients and
sales.
• Prices that are too low result in a loss of money or a failure to
cover operational costs.
• Anything that is a cost of running business is referred to as an
operating expense.
• So, what are your options? Make sure that menu pricing cover
operational costs and that they are reasonable for customers.
 Measuring menu strength
Average check
Range
Menu Scoring
Menu Engineering
 All you need to know about cost
• A restaurant cost is a one-time expenditure on a material resource like
food, liquor, dishes or kitchen equipment.
• A restaurant expense is a recurring payment that generates revenue like
utilities, rent, payroll, or marketing.
• Fixed costs include rent, mortgage, salaries, loan payments, license fees,
and insurance premiums. These costs are easier to budget for when
opening a restaurant because they don’t fluctuate much each month.
• Variable costs include food, hourly wages, and utilities. These costs are
harder to predict when opening a restaurant because they vary according
to output. After several months, you’ll know what to expect each month.
 Average check
The average check is normally considered to be the indicator of successful sales in the
establishment. The bigger the average check, the better because it means larger total sales.
To calculate the average check, there are four indicators to be considered
CP — the calculation period. You can choose a shift, a week or a month depending on the
calculation targets.
NC — the number of checks (purchases) by period. It isn’t equal to the number of guests
because one check may be paid by several visitors, for example, by a group.
ATS — the amount of total sales, or the revenue for the calculation period.
So, the concrete measure of success, the average check (AC), is calculated by dividing the
amount of total sales by the number of checks and thus, we get:
ATS / NC = AC
 Powerful phrases to increase average check for waiters
• Offer an alternative. Instead of the phrase “Would you like something
to drink?” the waiter may concretize: “Tea, latte, fresh juice or,
perhaps, wine?”
• Forget about negative words in the sentences and never use denial
when talking to a customer.
• Make a proposal in the affirmative with the words: “I advise”, “I think,
you may like”, “I recommend”, “Often our customers order”, etc.
• Offer specific positions: “We have a brand-new craft beer on our menu.
Want to try?”
 Range
• A better method is to establish menu range based on price- for example,
$6 to $8, $8 to $10, $10-$12 and track the number of actual sales.
• The result is a frequency distribution in graph.
• Range will show that how much are customers are willing to pay.
• If the graph is skewed around the low price end of the menu it indicates
that the items offered are outside the price that customer are willing to
pay.
• On the other hand , clustering toward the high end of the menu indicate
that the customers are willing to spend more.
 Menu Scoring
• Method developed by Michael Hurst, Professor of Restaurant
Management at Florida International University, a restaurant
owner and past president of the NRA.
• Devised to ascertain whether menu changes (additions,
deletions, and price adjustments) actually improved the
profitability of the menu by comparisons of a menu score.
• One advantage: quick to complete because it does not track
every menu item.
• Combines profitability and popularity of menu items to arrive a
a compromise score
• The higher the score, the better the menu
• An existing menu can be scored, then compared with a
proposed menu, after sales for the new menu have been
estimated.
 (1) (2) (3) (4) (5) (6)
Menu Numbe Item Food Total Total
Item r Sold Sales Cost Sales Food
Price Percent (2) X Cost
age (3) (4) X
(5) 7) Meal Check Average: 5/2 = $11.15
8) Gross Profit: 5–6 = $2,004.32
Chicke 65 $9.95 35 $646.7 $226.3
9) Gross Profit %: 8/5 = 63%
n 5 6
10) Gross Profit Average Meal: 7 x 9 = $7.02
Beef 75 11.95 38 896.25 340.58 11) Total Meals Served: 450
Turkey 90 10.25 31 922.50 285.98 12) Popularity of Meals Analyzed: 2 / 11 = 63%
Filet 55 12.95 45 712.25 320.51 13) Menu Score: 10 x 12 = 4.42
Total 285 $3,177. $1,173.
75 43
 Menu Engineering
• Determine the contributing margin (CM) of each item

Selling Price – Food Cost = Contributing Margin

– CM same as item’s Gross Profit
– Use total food cost (include garnish, accompaniments served with
entrée such as salad, potatoes, rolls, butter etc.).
 Contribution Margin
Dollars vs. Food Cost Percentage

Steak Dinner Fish Sandwich Coffee

Selling Price $15.00 $4.00 $0.75

Cost $7.50 $1.00 $0.15

Food Cost % 50% 25% 20%

Cont. Margin $ $7.50 $3.00 $0.60

 (1) (2) (3) (4) (5) (6) (10)
Menu Item Number Item Sales Food Cost Total Total Food C/M
Sold Price Percentage Sales Cost
(2) X (3) (4) X (5)

Chicken 65 $9.95 35 $646.75 $226.36 $6.47

Beef 75 11.95 38 896.25 340.58 7.41

Turkey 90 10.25 31 922.50 285.98
7.07
Filet 55 12.95 45 712.25 320.51
7.12
285 $3,177.75 $1,173.43

(7) Food Cost Percentage: (6) / (5) = 39.93%

(8) Total Contribution to Margin: (5) – (6) = $2,004.32
(9) Average Contribution Margin/ Customer: (8) / (2) = $7.03
(10) Contribution Margin per menu Item: (5) – (6)/ (2)
 Menu engineering grid

POPULARITY

PROFIT MARGIN
Menu Engineering
• Puzzle are items that are relatively popular but have a high
contribution margin. Items in this category can have their
menu prices increased or the portion size cut in a attempt to
increase CM. If market is price resistant
• Stars have both high popularity and high CM
• Plowhorse have relatively high popularity and low margins.
• Dogs are both low in popularity and CM
• Plowhorse:Explore using pricing psychology to increase the price Review cost of
ingredients for possible cost reduction without affecting the quality Review portion size
and see if it can be reduced Try partnering this item with a lower cost menu item to be
sold at a new price
• Tips for Star Items: Maintain quality and price Do suggestive selling to further boost sales
Take advantage of its popularity to introduce new dishes as side dishes Find out why it’s
popular and profitable to help you develop future menu offerings
• Tips for Puzzle Items: Improve presentation and flavor Do suggestive selling Serve as a
“set menu” along with a highly popular dish Experiment with a more recognizable name
• Tips for Dog Items: Remove from your menu Replace with a menu item that has better
potential based on diners’ feedback
 Placement
• Two Schools of thought
1. Menu Sequence
– Menu should follow progression of meal
2. Focal Points
– Use focal points on the menu to push certain menu items
 Focal Point

Focal Point

Focal Point

Single Sheet Menu Twofold Menu

2 4

Focal Point

3 5

Threefold Menu
 References
• Mill, Robert Christie (1998) Restaurant Management:
Customers, operations, and employees / Menu Scoring &
Menu Engineering, pp 114-116. Upper Saddle River, N.J. :
Prentice Hall.
• Drysdale, John A. & Jennifer Adams Aldrich (2002). Profitable
menu planning / Chapter 5: Menu Analysis, pp. 101-115. 3rd
ed. Upper Saddle River, N.J. : Prentice Hall, TX911.3.M45 D79
2002