Menu Evaluation & Pricing
Sales reporting is fundamental to business. Reporting is essential to making informed decisions about your restaurant. Not having a Point of Sale producing real-time reports is akin to letting a ship float without a captain.
We pizzaioli don’t always get it right when it comes to our menu offerings and our menu prices.
Here’s the scenario: Customer says, “You should offer such and such topping, everyone will order it.” Or: “You are missing out on customers by not offering a vegan pizza.” How about, “You really need to have this on your menu because your competitor does.” At first you resist, but that same customer persists, even to your crew when you are not there. Then your crew tells you they are getting tons of requests for the item. Finally, you cave and add it to your menu, pricing it much the same way you’ve priced everything on your menu; by comparing it to your competitor’s price. It turns out that it was not lots of customers asking for the menu items a few times, but instead was a few customers asking for the menu item lots of times. The item doesn’t sell, has a terrible food cost and has distracted you from focusing on your core product. You might even have made the mistake of throwing more time and money away by marketing the item, thinking that was the problem.
There is a better way.
For your menu to be right’, you must evaluate two components. First, do you offer the right items for your customers? Second, is each item on your menu priced right’?
The RIGHT menu items.
Lee Iacocca, during his turn-around of Chrysler Corporation, had a method that served him well. Every year, he required every division to terminate the bottom 10-percent performers. Let us apply that method to our menu. Once per year, remove at least one bottom performing menu item. How do we measure this? Your POS system will give you an annual report showing each menu item and the number of units sold. Select the item(s) that sells the least number of units and axe it.
Let us apply another time-honored method to our menu: K.I.S.S. KISS is an acronym for Keep It Simple Stupid. The simpler your menu, the better chance you have of your crew making what you do offer exceptional. KISS applied means this: do not add an item to your menu unless you remove one at the same time. In other words, to add a menu item, you must sacrifice something you already offer.
By applying these two methods, your menu will reduce in size slightly (by at least one item) every year, bringing more focus to your core menu items.
Menu priced RIGHT.
The man who first introduced this concept to me was Big Dave Ostrander. We met at Pizza Expo back in 1989 (yeah, I’m that old). Big Dave taught two measurements used to determine if a menu item was priced correctly. The first measurement is the Ideal Food Cost Percentage. The second is Contribution To The Bottom Line.
Ideal Food Cost Percentage means this: Make a large pepperoni pizza exactly to your recipe, with the exact amount of dough, sauce, cheese and pepperoni. Calculate how much these ingredients are costing you exactly. Then take that cost dollar amount and divide it into the price your charge for a large pepperoni pizza. Format it as a percentage. IF there were no mistakes, no theft, no remakes, no waste and the pizza was made exactly to the recipe, you now have your ideal food cost for your large pepperoni pizza.
Full disclosure: this will take some work. It is a perfect job for a college student in a business curriculum. If this ends up feeling like too much work, think of these words by my Pizza Mentor and former boss, Roger Duncan, founder of Rusty’s Pizza. “Sales are made in the stores. Profits are made in the office.” This is office work.
Ideal food cost calculation can be done on an excel spreadsheet, creating the formulas to produce the results. However, most POS systems will give you ideal food costs, provided you feed the POS system the information. You will need to input each purchased food item into the POS inventory program, completing the tables for purchased unit w/cost’, inventory unit’, and usage unit’. Also, feed the POS system your recipes. Input ounces of dough, sauce, cheese, pepperoni, etc. for each pizza size and each menu item. Engage the experts at your POS company to guide you. It is well worth any support fees you may incur.
The Ideal Food Cost of a PizzaMan Dan’s large pepperoni pizza, our lowest food cost item and most popular menu item, is 18.10 percent. Not bad considering we run an overall food cost of 26 percent. Note that I did not say “Our most profitable item”, because lowest food cost is not necessarily the most profitable sale.
Contribution To The Bottom Line is arrived at by taking the menu price for the item and subtracting the food cost for the item. A large pepperoni pizza, priced at $21.99, with a food cost of 18.10 percent, contributes ($21.99-$3.98) $18.01 to the bottom line. A large house special, priced at $28.99, with a food cost of 25.50 percent contributes ($28.99-$7.39) $21.60 to the bottom line. So, do we make more money selling a low food cost pepperoni pizza, or a high food cost house special pizza? The house special, of course.
Once the work is done, you will have each menu item ranked from best food cost to worst food cost. You will also have each menu item ranked from best contribution to worst contribution. Adjust the pricing on your menu for the items in the worst’ section of each list to bring these items more in line with the more profitable items on your list. How far down the list should you adjust? I recommend the bottom 20 percent of each list.
Time to make your menu RIGHT. Offer the right items at the right price and you will have a more profitable pizzeria, with more attention to making the items you serve exceptional. Win for you and win for your customer!
Dan Collier is the founder of Pizza Man Dan’s in California and a speaker at International Pizza Expo.