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Sheffield Hallam University: MSc: Hospitality Assignments
Hospitality Business Development
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Assignment 2
1. The Food service restaurant. Overview *
2. Analysis of the existing competitive situation *
3. Programme of actions to secure improvements *
The Menu *
Star *
Plowhorse *
Puzzle: *
Dog *
3. Cost of setting-up the improvement programme *
4. References *
5 Appendix menu engineering spreadsheet
The restaurant that I have chosen to evaluate is located in the West End of London. Due to confidentiality reasons I have changed it name. I will call it "Spes". It is an Italian restaurant with a medium/high cuisine. Obviously all their dishes have Italian connotations. Pizzas are not in the Menu.
The restaurant’s premises are on two floors. In the downstairs floor there are: a small dining room with two tables for six people each which is not in use any more; the kitchen and the toilets. The kitchen is small and narrow and all the equipment looks old. The restaurant is in the ground floor. It is quite spacious, luminous and cosy. It has capacity for 56 covers distributed in 12 tables for 4 people and 4 tables for 2 people. The restaurant is open every day, including Sundays, from midday to 3 p.m. and from 6 to 11 p.m.
The staff who work in Spes number 5 people. In the kitchen, there are two: the Chef and an assistant who not only cooks but he does the washing up as well. In the ground floor work the Manager and two waitresses who work part-time.
But in Spes, there is no monitoring carried out to evaluate productivity. Obviously the Manager knows the number of customers who ate in the Restaurant the previous days but no forecast is done. He knows that in the weekdays, in the lunchtime there are fewer customers (6-8) than for dinner, around 10-12 customers. In the weekend the number of customers increases, arising 10-12 in the lunchtime and 15-20 in the evenings. The food and beverage average spend per customer is around 30 pounds.
There is not much communication between the Manager and the Chef. For this reason the Manager does not know much about kitchen matters and vice versa.
2. Analysis of the existing competitive situation
To analyse the existing competitive situation, it is necessary to mention that in the same street as Spes there are another Italian Restaurant, a French Restaurant, and an English Pub. Therefore Spes’ business environment is quite competitive. The name of the Italian Restaurant is Al San Martino, which is a non-smoking Restaurant and charges £5 as a supplement in the evening,. The Restaurant is smaller than Spes, with capacity for 22 people. The lighting the tapestries of its chairs and the way how those and the tables are placed, the glassware, the cutlery and the design of its cards, demonstrate fashion, trendiness and success.
The menu is short and is divided in three parts: Starters, Main Courses (Fish and Meat) and Desserts. It has as well a quite good menu of Italian wines. Its prices go from £13 to £32.
The dishes in the menu look seasonal and quite innovative. The prices of the starters are from £6.50 (Linguine a la vongole) to £13 (Carpo sante tartufato).
Relating to the Main Course, the prices vary from £12.50 (Capone con castagne) to £21 (Spigole al forno).
The desserts are attractive and, excepting the ice cream and sorbets, they are untraditional. Prices go from £5 (Hand made ice cream and sorbets) to £9 (Fresh dates filled with marzipan, rolled with pistachio and served with a bitter chocolate sauce and white mint ice cream).
The staff who work in Al San Martino total 6 people: Three in the kitchen: the Chef, an assistant and a dishwashing person who works part-time.
In the ground floor works the Maitre and two waiters.
The food and beverage average spend per customer is £45. On weekdays, at lunch time there are usually between 4 to 8 customers and 10 to 12 for dinner.
In the week end the number of customers increases, rising between 8 and 14 for lunchtime and 12 to 15 for dinner.
The French Restaurant is located at the head of the street and its size is the same as the Italian Restaurant, 20 people. Its menu is short as well, but the prices of the dishes on the menu are cheaper. The menu is divided in two parts: The Starters and the Main Courses.
The cuisine, obviously, is French and in the Menu we can find some traditional dishes from that country, as Soupe d’oignon, Escargots aux fraiches herbes or Foie de veau au Porto. The price of the starters goes from £2.90 (Escargots au fraiches herbes) to £5.50 (La salade du fruits du mer). In the Main courses, the price of the fish and the price of the meat are very similar. The prices in both cases go from £9.50 to £12.50. The ambience of this Restaurant is very simple including the chairs and the way that those and the tables are placed. The cutlery, the glassware and the menu cards are strictly functional. The food and beverage average spend per customer is £20. In the week days at lunch time there are usually between 8 and 10 customers, being more or less the same number for dinner. In the weekend the number of customers is the same as weekdays in the lunchtime but it increases for dinner, rising between 12 and 15 customers.
The staff who work in this Restaurant are 4 people. Two in the kitchen; one of them is part-time. In the ground floor there work two people, one of them is the owner.
The English Pub, is not very big. Traditional English food is served all the day. Because the number of customers who have lunch or dinner is quite reduced, the number of dishes on the menu is very short. Moreover it is possible to find everyday dishes as "Kidney Pie", "Stew" or "Roast with potatoes and peas" which are simple and easy to cook. The desserts to choose are traditionally English and few in number: "Meringue Pie", "Fudge chocolate with cream" and "Ice Cream". The food and beverage average spend per customer is around £6.
The staff who work in the Pub are 3 people. In the kitchen works one person from 11:30 to 13:30 hrs. She only prepares the dishes for the lunch and the following dinner. In the Pub works the owner from the opening time, at noon, to the closing time, midnight and another person who comes every day, from 12:30 to 15:00 hrs. and from 18:00 to 22:00 hrs..
3. Programme of actions to secure improvements
In my opinion the programme of actions to secure improvements in Spes, should start with an analysis of methodology to classify menu items by their contribution margin and popularity. Following Atkinson (1994) this analysis called Menu Engineering will allow a restaurant to adopt more effective decision making, both with respect to marketing and operating. Its objective is to modify the menu’s composition in order to build positive items and reduce the negative ones.
As Kasavana (1982) asserts "Menu engineering is a step-by step process designed to assist management in evaluation of both current and future menu pricing, content and design decisions." Specifically menu engineering is concerned with:
1. Producing a menu item analysis
2. Generating a menu mix analysis
3. Developing menu item classifications
4. Identifying appropriate menu item decision alternatives
The Menu engineering approach will focus on three critical elements:
1. Customer demand- the overall number of customers served.
2. Menu mix (MM) - an analysis of customers preferences in menu item selection.
3. Contribution Margin (CM) - an analysis of the gross profit of all menu items.
Referring to the last critical element, LeBruto (1995) explains that contribution margin analysis is done first determining the weighted average contribution margin of all the menu items within the section of the menu being analysed. This is accomplished by computing the individual contribution margin for each of the individual menu items and then multiplying it by the numbers of sales for each particular item in the menu section. The total of each item’s total contribution margin is summed and divided by the total number of items that were sold within this menu classification, resulting in a weighted average contribution margin. Those menu item that experienced an individual contribution margin greater than the weighted average contribution margin, receive a classification of high contribution margin, and those that do not achieve the weighted average contribution, are labelled low.
Those two dimensions together could form a two by two matrix, helping management identify those items that are "good" to sell. "Good "items to sell are those that are popular and profitable.
Researchers, such as Pavesic (1985) computed the individual menu item’s contribution margin as a percentage of the weighted average contribution margin (profit factor) to show operators the relative profitability of a particular item to the weighted average contribution margin. Dougan (1994) contributed a personal computer spreadsheet model to help facilitate operators in the use of menu engineering, stressing that the only data that is required to be collected are selling prices, variable costs, and numbers sold of each item. Looft (1989) recognised the need to consider labour in menu engineering and suggested than an exercise in determining the actual labour effort that Ashley (1995) concluded that there is variability of demand of each item sold on a daily basis and stated that linking a dollar amount of labour to a particular item would be inaccurate because situations exist where the labour and customer count is the same on two successive days, but the sales mix differs. They recommended dividing the menu items into high labour and low labour, adding a new dimension to the menu-engineering model, a three by two matrix.
As we see, Menu Engineering used as a tool, can force management action in marketing and merchandising particular menu items to create new sales mix resulting in a higher level of contribution margin, usually with no additional costs.
Through Spes’ Menu engineering process evaluation we will know which item’s are particularly suitable for a promotion, if a dish can be reformulated from a less expensive supplier, if a dish can be priced a higher level or if the demand can be shifted influencing the customers from less profitable to more profitable items.
The Menu
MEAT
Vitello Picante (1), Scallopine al Gorgonzola (2), Petto de Pollo al Spes (3), Fogatto de Vitello 4), Bisteca di Manza al Pepe (5), Filetto di Manza (6),Pollastrino di limone (7) Pollastrino al romario (8), Costeta di Agnello, (9)
FISH
Sogliolla alla griglia (10), Codo di rape al fostetti (11), Scampi Vecchia Romana (12), Salmone alle erbe (13), Gamberino mare pesto (14).
Examining carefully the Spes’ Menu Engineering Worksheet of the dinner from 19th. December 1998, (see Appendix) we can assert that the difference between the cost of all of items listed and their selling price are around 33,30% unless the "Salmone alla herbe", which is 49.85%, too high in relation with the other dishes. In the same way its contribution margin is only £3.28.
As is establish in the Menu Engineering Worksheet, the dishes are categorised in the following way:
Star
These are the dishes which both sell well and have a higher average £ contribution margin, such as:
Fogatto di vitello
Bisteca di manzo al pepe
Costetta di agnello
Scampi Vechia Romana
Codo di rape al fostetti
Sogliola alla griglia
Plowhorse
These are the menu items which sell well but which have a lower than average £ contribution margin. They are:
Vitello Picante
Pollastrino di limone
Salmone alle erbe
Puzzle:
These dishes have a higher average £ contribution, but do not sell well. They are
Scallopine al Gorgonzola
Filleto di Manzo Gamberoni mare pesto
Dog
These neither sell well nor have a good £ contribution margin. They are:
Petto di Pollo al Spes
Pollastrino al Romario.
Referring to the dishes’ popularity and always in accordance with the analysis done, most of the dishes are popular, 9 compared with 5 unpopular.
Taking in account that the Spes business environment is quite competitive, and taking advantage of the information obtained by the Menu Engineering Worksheet, Spes’ owner and manager should reposition the Restaurant, and should adopt certain decisions to differentiate Spes from its competitors. The results of these decisions will be to offer to the customers innovation, quality and improve the way to service them whilst increasing profits.
Innovation and imagination with quality are two concepts with which customers always are pleased because it means that the organisation is thinking of them and their needs. Making the customers happy in terms of food quality, responsive service and competitive prices will always be the first priority to obtain profits, making the Spes budget go further.
In Spes, innovation should include the dishes on the menu as the Service attributes of staff and Physical attributes of the Restaurant.
Relating to the innovation with imagination of the dishes on the Menu obtaining more profits, it will be necessary a total commitment from the owner, the manager and the Chef to achieve the purpose. I would recommend:
A) To study deeply and rigorously all the menu’s dishes because the menu should be understood as a Marketing Plan which will attract new customers and will increase the frequency of repeat customers. The menu represents the strategy by which Spes can make greater incremental profit from each customer. Is necessary to know the customers and their opinion about Spes and its service. One way to achieve this is to listen more to the waiting staff. They are an under-utilised resource. They come into daily contact with the customers and they have opinions and valuable insights about price, presentation, etc..
Their perspective on prices is important to both Restaurant profitability and their livelihood. It will be very interesting to get their opinions on menu changes and to get their feedback by making them rank, on scale of 1 to 5, each menu item. Normally serving staff are very realistic about prices and they are reluctant to sell items they feel are incorrect either under or ever-priced. This initiative, referred to in Lashley (1995) is one way to empower the staff. will improve their self-esteem and sense of professionalism.
B) Related to the previous section (A), and due to its financial implications, for Spes it will be very beneficial to study its formula pricing. Because it simply takes the cost of an item and assuming that the food cost goal is 33%, applies a multiplier of 3 to arrive at menu price. It is very simple and very easy but it totally ignores two important questions such as:
What are customers able to pay?
What is the market?
Formula pricing, however is an appropriate first step in setting menus prices. But in the final analysis, what really matters is how much the customer is disposed to pay for an item based on the portion, size, and type of the product and plate presentation. Moreover the price setting process should initiate with formula pricing, and build from there to establish a price which reflects Spes customers’ sense of value perception. Normally, the customers have an intuitive sense of value, which can work in Spes favour because the sense of value is rarely based on the raw cost of an item.
Relating to the dishes on the Menu, first of all, is necessary to remove from it, the "dog" dishes because they not only do not have a good £ contribution margin but the customers do not ask for them.
In the same way, it is necessary to increase the contribution margin in the "plough horse" dishes to obtain the average £. There exists only two ways to increase the contribution margin: obtaining from the suppliers cheaper cost prices or selling the dish more expensively. I think the second alternative is more feasible because the first alternative can lead to a loss of quality.
However to sell the dish more expensively, it is necessary to improve its marketing and presentation. The Chef’s skills will improve its presentation with inexpensive, pleasant and colourful products (e.g. lettuce, carrots and red cabbage) which can justify the increase, and at the same time, allow Spes to raise the contribution margin. This is the case, of the "Salmone alle erbe" which sells well but its contribution margin is lower than. Am increase in price is certainly justified here. It is hardly surprising that it is one of the most popular items with a menu mix of 12.50% at the price at which it is being offerred.
B) Promoting the menu, the dishes with favourable contribution margin but which are not selling well; theses ones that in the Menu Engineering Worksheet are classified as puzzles. This promotion should be carefully studied to achieve the better and cheapest way to succeed. Obviously, the staff should be involved in whatever initiative to be adopted, offering to them a bonus for the most sales.
C) Page positioning. This concept applies that the place where you put certain items on the menu can increase the chance of being selected. In the same way can be very useful as well, to highlight with signature icons these dishes in the printed menus. Signatures icons and thew use of colour are very effective accentuating certain items and subtly can determinate the customers into selecting them. It is a tested phenomenon that customers choos the first and last items in the menu. It is advisable to push the puzzles, items with a high item contribution margin that do not sell well, without neglecting the stars. Rank items in accordance with the item contribution margin and place them alternatively top and bottom. Thus Filetto de manzo, a puzzle, with an item contribution margin of £ 8.54 goes to the top and Fogatto di vitello manzo, a star, with an item contribution margin of £ 7.67 goes to the bottom of the meat menu. Likewise Sogliola alla griglia, a star goes to the top of the fish menu with an item contribution margin of £ 9.20 and Gamberoni mare al pesto, a puzzle, goes to the bottom of the fish menu.
D) Describe and name the Spes’ menu items evocating and relating them to the history and geography of places as "Roma", "Sienna" or "Tuscany" and use words such as "texture" "aroma" to stimulate all the senses and use as well descriptions such as "delicious", "sweet" to create a ideal mental images.
E) Rounding the menu prices, is a way to improve gross profit without affecting existing price and value perceptions. Known customer behaviour indicates that for menu items priced under £5, customers only perceive price increments of 25 pence. And on menu items above £5, they only recognise price increments of 50 and 95 pence. This strategy suggests that a price of £9.60 can easily rounded upward to £ 9.95 producing an additional gross profit of 35 pence with no difference in value perception for the customer. In the same way the price item of £3.20 can be rounded to £3.50.
3. Cost of setting-up the improvement programme
It is not easy to identify the cost of setting the improving programme in Spes because I think is more a question of commitment of everyone who work in the Restaurant, from the owner and manger to the Chef assistant, than a financial matter. It may involve changing some or all members of the team if they do not have the right forward looking attitude. Obviously such drastic action if necessary would increase costs. Much cheaper would be motivational training which would cost about £1000 per person.
Another cost that I can identify is mechanical and artistic: The menus need to completely redesigned and printed. It is not just a question of word processing and desktop publishing but appropriate and evocative choices of descrptions of the items in the menus. The menu is an advertisement and appropriate skills must be budgeted for.
Through new menus Spes can put in practice all the actions to improve its running.
4. References
| Atkinsons H, Jones P. (1994) "Menu engineering: Managing the Foodservice Micro-Marketing Mix" Journal of Restaurant & Food Service Marketing Vol. 1(1) |
| Dougan J. (1994) Menu engineering with electronic spreadsheets. The Bottomline, 8-15-17. |
| Gorodesky Ron and Ed McCarron (1998) "For profit’s Sake- Inventory your Beverage Cost "Issue 12, Restaurant Report. |
| Gorodesky Ron and Lange Kate(1998)" For profits Sake, Inventory your Food Cost" |
| Heap J. (1992) " Productivity Management: a Fresh Approach" London: Cassell. |
| Kasavana L. M., Smith D.J. (1982) "Menu Engineering: A Practical Guide to Menu Analysis" Hospitality Publications. |
| Lashley C. (1995) "Towards an understanding of employee empowerment in hospitality services" International Journal of Contemporary Hospitality Management, Vol. 7. No.1. MCB University Press Limited. |
| LeBruto S., Quain W. and Ashley R. (1995). Menu engineering: A model including labour FIU Hospitality Review 13, 1, 41-50. |
| LeBruto S., Quain W., and Ashley, R. (1997) Using the contribution margin aspect of menu engineering to enhance financial results. International Journal of Contemporary Hospitality Management. In Press, Volume 9, number 4. |
| Leslie D, "The Control Function and the Hospitality Industry" (1987) Services Industries Journal Vol. 7 No. 2. Pp 207-15. |
| Loft, D.W. (1989) Enhancing current menu sales mix analysis for the 1.990’s and beyond. Second Annual AHFME Research Symposium 2, 14-23. |
| Maldelbaum Robert (1997) Productivity and Pricing Perpetuate Profits, PKF Consulting. |
| Pavesic, D. (1985). Prime numbers: Finding your menu’s strengths. The Cornell Hotel and Restaurant Administration Quarterly 26, 71-77. |
| Payne Kirby D. (1997) "Increasing Food and Beverage Revenues in Hotels" American Hospitality Management. |
| Pickworth James R. (1987) "Minding the Ps and Qs. Linking Quality and Productivity |
| Witt A. Christine and Stephen F. Witt (1989) " WHY PRODUCTIVITY IN THE HOTEL SECTOR IS LOW" Department of Management Science and Statistics, University College of Swansea, UK, |
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