THE ART OF MERCHANDISING MENU ITEMS FOR INCREASED PROFITS
Before we dive into our lesson on merchandising menu items for increased profits, take a good look at the graphic below. We call it a Decision Making Triangle and it’s uncanny how well it works. This isn’t like the magic 8 ball you were shaking as a kid when you were deciding if it was a good idea to have your first kiss with Susie or Bobby down the block… this thing really works!
USING THE DECISION MAKING TRIANGLE:
Ok, so now you’ve seen the triangle, but what does it all mean? Here’s the part where you lean forward… whenever you think about making a decision that affects your business, ask yourself three questions:
- How is this decision going to be “Good for My Guest?“
- How is this decision going to be “Good for My Team?“
- How is this decision going to be “Good for my Profit?“
As you go through each segment of the Decision Making Triangle, do the following:
- Jot down both the pros and cons of your decisions effect on the Guest, Team, and Profit
- Grab your core team members and have them go through the same exercise (don’t share your list with them until the end)
- Compare the lists and share the results
- Remember to also solicit and/or gain their approval for the implementation of the decision into the business – This is the most important step and not doing so will render your decision ineffective without Team Member support – there’s your Magic 8 Ball
“What’s good here?”
asks your guest as he looks up from the menu he’s been studying like it holds the secret for the meaning of life. Wait for it…….. Here it comes….. “Everything’s really good here!” exclaims your team member in that slightly manic, up talk tone that is usually reserved for a ride operator at Disneyland during spring break. Your ears begin to crack like tempered glass at 15 below zero. Your hand slams into your forehead like you should have had a V8. Yep, we’ve all heard it before and we all hate it. It’s on every restaurant owner’s top 10 pet peeve list. Those four little (or sometimes three if “really” isn’t used) words do as much to destroy a business as standing on a table in the middle of a lunch rush and shouting, “Hey we just failed our Health Department Inspection!” For those of you who aren’t following along let me break it down for you. Exclaiming to a guest that, “Everything’s really good here!” says the following:
- The Team Member has no clue what they should be promoting to new guests as signature items
- Your training program sucks or is non-existent
- You have no clue which menu items have the greatest margin contribution to your business
- You (or your Team Members) don’t care enough about your guests to educate them on your business and your brand; therefore, they will NEVER become raving fans and support your dream
Let’s look at a simple merchandising strategy designed to increase your sales, plunk some additional Benjamin’s to your bottom line and, if you do it correctly, will create long-term guests who, in turn, will promote your business. It would be helpful at this point if you’ve read our Menu Engineering article, as you’re going to need to have Menu Engineered your top selling items as part of the Merchandising process. If you haven’t, here’s the link to get yourself up to speed: Menu Engineering
Put a face on the Boogieman:
In other words, you need to identify the unknown Gross Revenue and Margin that your top-selling, as well as your specialty menu items, are contributing to your restaurant. Why you ask? Because if the items that you’re selling the most of aren’t making you any money then you’re going to wind up being the opposite of successful. Furthermore, if the menu items that you are parading around as your specialty items aren’t selling, you’ll have first-hand experience at knowing what the Titanic looked like in dry dock. You’ll recall from our Menu Engineering article that we label Items that have high sales and high costs as Reprice. These items can bury your business, and thus, keeping an eye on their ingredient costs is mandatory.
You can see from the example above, the top-selling menu item in our Entree Category is the Prime Rib Dip. This item represents 17.2% of all of the entrees sold. That’s a lot of cheddar!!
Now let’s assume that this item has a 30% (i.e. $14.61 x .30 = $4.83) food cost and a gross margin of $9.78 (i.e. $14.61 – $4.83 = $9.78). Let’s look at what would happen if you reduced the recipe cost of these items by just 4%.
|Sell Price||Food Cost %||Food Cost $||Gross Margin $|
|Increase in Gross Margin||$1.03|
Now look at how much money you’re contributing to the business. This increase of $1.03/Prime Rib Dip increased your year to date gross margin $1,075.32 (ytd qty sold = 1,044 x $1.03)… AND THAT’S ON ONE ITEM ALONE!!!!
There’s two roads to travel when you’re trying to reduce recipe costs. 1. Sourcing better priced items (while maintaining quality standards) and 2. Simply raise the prices. The first takes effort and coordination with your Chef and Vendor partners. The second is a pure gamble and you only have a limited amount of turns to play it. Let’s say that we decided to raise the price of our Prime Rib Dip by 5% in order to reduce recipe cost. It’s an easy solution. Or is it… Let’s put our decision to the test by using the decision-making triangle.
- Good for the Guest: Increasing prices is never good for the price sensitive guest. You’ll need to make sure to keep an eye on your guest counts for the long-term as well as guest feedback to ensure that they find value in the menu items. Declining guest counts after a menu price increase are a sure sign that you made a bad decision.
- Good for the Team: Increasing menu item pricing can increase the guest check average thus resulting in higher tips. This will increase the earned wages for your staff. Once again, keep your eye on the guest because you don’t want the increase in tips to be short-lived. Also, pay close attention to your product mix as the price-sensitive guest may move to a lower priced item thus resulting in lower check averages.
- Good for Profit: Lower costs equal higher margins. This is always a good thing AS LONG AS THE MARGINS ARE SUSTAINABLE. Does your brand support your decision? Are the items selling at the same velocity as they did prior to the price increase? Is there increased product waste due to the lack of sales? Is your decision driving additional marketing or training that has created unforeseen expenses? Are these expenses short or long term?
- Additional Considerations: How does changing the portion size or substituting cheaper ingredients affect my Guest, Team and Profit?
Merchandise like a Madman:
Merchandising (AKA selling) is how we stay in business. Merchandising properly is also how we sustain permanent, long-term growth. There are several simple key points you’re going to want to focus on with your team in order to merchandise properly.
- Know the Score: You’ve taken a very important first step by understanding which menu items have the highest velocity, greatest margin contribution and represent your brand properly. Equally as important, you understand which items, while still important to your menu balance, aren’t the ones that are going to provide your business with the margin contribution you’ll need for the new BMW.
- Knowledge is Power: Schoolhouse Rock taught us more than how a bill becomes a law or how a conjunction functions. Those cartoons provided us with the education we needed to make better decisions. Educating your team members on the strategy of merchandising provides them with power! The power to create raving guests, the power to increase their income and the power to increase your profits. Remember this rule when you’re pulling the old, “Why am I the only one who can do this,” routine – there’s only one of you, while there’s typically 15-30 of them. You are not alone and you definitely cannot achieve your goals without their support. Stay tuned for our upcoming article on how to properly educate your team members.
- Coffee is for Closers: Alec Baldwin’s character Blake in Glengarry Glen Ross said it best: You need to measure the results of your efforts and celebrate those successes with your team. Measuring your results also provides you with the ability to stay focused and make adjustments when curveballs come your way.