Following the line of offering readers a set of tools associated to Insights From the menu, as an indicator of results in gastronomic organizations, the author proposes for the present the cost-margin analysis.
In this sense while in menu engineering and Prices popularities are evaluated, in this it constitutes the performance in terms of cost of the different elaborations that are offered to the client and their incidence in the economic and financial results of the organization.
The theoretical method
The method shown, and I clarify, by itself should not be analyzed. Like the previous set of tools, a multi-criteria analysis must be applied, which allows the combination of the different results to be able to take the strategic correct.
Going into the matter, the method called Cost-Margin Analysis combines the ratio of the percentage of the cost of food and the contribution margin, which allows an interpretation of the deeper menu analysis. The assumption of this methodology is to simultaneously optimize the contribution margin, with the achievement of the lowest percentage of costs for food and improve total sales revenue.
For the Cost-Margin analysis, the same data collected for Menu Engineering is useful. Then a graph is drawn representing the percentage of the cost of food vertically, and the weighted value of the contribution margin on the horizontal axis, to “plot” each menu item. In this sense, the points on each axis need to be marked, which represent the percentage of potential cost of food (CPA).
The percentage of costs of food is the limit point between high and low potential cost of food for the menu sales mix, and is obtained by dividing the weighted cost of food by the weighted sales.
CPA = [Weighted cost of food ($)] / [Weighted sales ($)]
Likewise, the weighted average contribution margin (MCPP) that is used as standard must be calculated, dividing the total weighted contribution margin by the number of individual menu items.
MCPP = [Total weighted contribution margin ($) / [Qty. of products in the menu]
For the interpretation to be valid, it is recommended to use information for a period of at least one week, although the author recommends that the information corresponding to one month be used.
Once the above calculations have been performed, parallel and perpendicular lines to each axis are drawn through these points, so that they intersect. The lines will divide the graph into four quadrants. The contribution margins for each menu item and the individual food cost percentages are then plotted on the graph.
Products below the potential food cost percent line (CPA%) are considered low in terms of food cost and products above the line are considered high in costs of food. The menu items plotted to the left of the total weighted contribution margin (MCPP) line are considered low in contribution margin, while the products plotted to the right of the line are considered high in contribution margin.
CPA is the Weighted Cost of Food
MCPP is the Average Weighted Contribution Margin
The four quadrants are given names that categorize the menu items located within. The “select” ones in the lower right quadrant represent the products with the costs of food optimal (low) and the optimal contribution margin (high). The greater the concentration of products in this quadrant, the better the total mix of sales on the menu.
The limit points for the classification of each of the dishes are:
A= High, B = Low, MC= Contribution Margin, C = Food Cost (%)
The meaning of classifications
The select ones are the specialties of the house and it can be said that the restaurant You must prioritize the production and sale of this product as possible. The products located in this quadrant can be put any price that will be consumed. They help improve the costs of foods that others affect.
Products that have high food costs and provide a considerable contribution margin are considered "standards", because these products are popular and are usually offered by competitors, so prices are kept low to stimulate sales. These products will be plotted in the upper right quadrant.
Other classifications that are obtained with the application of this methodology are “sleepers” and those products that are newly incorporated or tested generally fall within this group to see how customers react to them. Many times some of the products that make up this quadrant become “select”. They are characterized by low costs and low contribution margins.
The last group that makes up this matrix is the "problem" dishes. These dishes are those that have a high cost and low contribution margin. As in menu engineering with "dogs," actions must be plotted to move them to another quadrant, or they must be removed.
A little clarification
For restaurant Ideally, the lines that make up your offer should be located in the “select” and “standard” quadrants. However, the existence of "sleeping" dishes helps to soften the high costs that are generated by "standard" products. Generally the group of products ("sleepers") become a diversification strategy for the offer.
Contrary to Menu Engineering, the popularity of the dishes is not plotted directly on the graph. The trend is that many of those popular dishes will fall to the right of the MCPP line.
This analysis allows identifying those lines that, because they are closer to the average lines, may be moved to other quadrants, by applying minimal changes in prices.
Finally, after explaining the methodology, the author suggests that once the technique has been applied and certain results have been obtained, evaluate the organization's strategic objectives. The values obtained with the calculations may be well below those planned for the restaurant.
This will allow you to identify costs that maintain their classification and those that are sensitive to that value, which indicates that they require an analysis, which may be focused on price, weight and, in some way, suppliers.
Any results you obtain with the application of this technique, will allow you to obtain information on the behavior of costs and sales of your products, which will allow you to evaluate your menu and make the right decisions.