This essay focuses on Menu Engineering. Justify the impact your potential customers have on the item selections and pricing of the menu. Explain the advantages of using menu engineering. Describe price elasticity, and explain why it should be considered when setting menu prices.
In a two- to three-page paper (not including title and reference pages), answer Critical Thinking Questions numbers 1 through 4 at the end of Chapter 13 (p. 276).
Make sure to respond to the items below completely and thoroughly.
Further, Describe the advantages of using menu engineering.
Examine the danger of focusing too heavily on food cost percentages.
1. Firstly, What impact do your potential customers have on the item selections and pricing of the menu?
2. Secondly, What are the advantages of using menu engineering?
3.Thirdly, What is price elasticity, and why should it be consider when setting menu prices?
4.In addition, What is the danger of focusing too heavily on food cost percentages?”
The primary goal of menu engineering is to encourage purchase of targeted items, presumably the most profitable items, and to discourage purchase of the least profitable items.
To that end, firms must first calculate the cost of each item list on the menu. This costing exercise should extend to all items listed on the menu, and should reflect all costs incur to produce and serve.
Optimally item costs should include: food cost (including wast product and product loss), incremental labor (e.g., cost in in-house butchering, pastry production, or prep), condiments and packaging.
Only incremental costs and efforts should be include in the item cost.
should be feature on a menu has food cost percentage and gross profit.
Food cost percentage is calculate by dividing the cost of the menu item ingredients, including surrounding dish items, e.g., salad, bread and butter, condiments, etc. by the menu price.
Gross profit is calculate by subtract the menu cost as previously define,.
Advocates of menu engineering believe that gross profit trumps food cost so they tend to identify menu items with the highest gross profit, items like steaks and seafood, as the items to promote.
The downside of this exclusive approach is this items this are high in gross profit are typical the high price items on the and they typical are on the high end of the food cost percentage scale.
This approach wo
rks fine in price inelastic markets like country clubs and fine dining white table cloth restaurants.
In addition, food cost cannot be ignore completely.
This is not a recommend strategy for neighborhood restaurant with average checks under $15.
Unfortunately, these items are typically the low price items on the e.g., chicken, pasta, soups.
Low food cost and high gross profit are not mutually exclusive attributes of a item.
identify items that are both low in food cost and return a higher than average gross profit.
These items refer to as primes. This analysis works well for restaurants in highly competitive markets where customers are price-sensitive.
There is really no single method of analysis that can be use across the board on all items.
If a menu item is a “commodity” like hamburgers, chicken tenders, fajitas, and other items find on the majority of restaurant menus, prices tend to be more moderate.
However, no restaurant can sustain a competitive uniqueness or price advantage over their competition in the long run. Eventually competitors will try to match them.
Remember, the customer determines the best price to charge, not the restaurant operator. Customers do not care about your costs; they care about what you charge.
After an item’s cost and price have been determine, analysis and evaluation of an item’s profitability is base on the item’s contribution margin.
The contribution margin is calculate as the menu price minus the cost.
Menu engineering then focuses on maximizing the contribution margin of each guest’s order.
Recipe costing should be update (at least the ingredient cost portion) whenever the menu is reprint or whenever items are re-engineer. Some simplify calculations of contribution margin include only food costs