It is a little-known fact that when restaurant operators aim to improve profitability, the bitter pill they must swallow is to contemplate a most unpalatable choice: Do I raising prices or cut portions? For many, they don’t realize that such calculation need not be necessary, for one of the most effective profit levers is, in fact, sitting in front of every guest—the menu.
Menus are seen often as little more than mere lists and taken for granted on the table. The reality is that effective and impactful menu formulation and design constitutes one of those seemingly simple activities behind which considerable sophistication hides. Engineering a menu resides at the intersection of marketing, psychology, and operations, influencing the choices of diners and driving efficiencies in food service and profitability of dishes.
Known in the industry as “menu engineering,” the practice combines sales analytics, pricing strategy, product mix management and consumer psychology to influence purchasing decisions while improving margins. Originally developed in 1982 by hospitality researchers Michael Kasavana and Donald Smith at Michigan State University, menu engineering has evolved into an indispensable operating tool for restaurants seeking stronger financial performance without compromising food quality and guest experience.
It's Pretty Much All About Financials
Kasavana, long since retired from teaching business, said that many restaurant operators carry serious misconceptions about how menu items relate to profitability. “Perhaps the oldest misconception in foodservice management is that food cost is directly related to profitability. In other words, the lower an operation's food cost percentage [food cost divided by food sales], the more profitable the restaurant is assumed to be. This is simply not always the case,” Kasavana asserted.
Before redesigning a menu, operators need to understand how each item performs relative to its percentage cost thereby reducing the basics of menu engineering to two key metrics: Popularity or how often is a given item ordered compared to others; and Contribution Margin, principally an accounting term, but simply stated refers the amount of money remaining after food costs are deducted from the selling price of a single order [as a percentage of selling price].
As Kasavana explains, “Consider the traditional steak and chicken example. If say Hawaiian Chicken has a food cost of $1.00 and a menu price of $3.00 it will have a 33 percent food cost. Similarly, if New York Strip Steak has a food cost of $2.50 but sells for $5.00, it will carry a 50 percent food cost. When asked which of these two items they would prefer to sell, operators who are unfamiliar with menu engineering principles will be quick to identify chicken since it carries both a lower unit food cost and a lower percentage food cost. That said, as far as profitability is concerned, considering the difference between each item's selling price and its food cost is the hidden difference that makes a difference. And, it has a name: contribution margin. Contribution margin is the focus of menu engineering,” elucidated Kasavana.
Kasavana elaborates: “The Chicken has a contribution margin of just $2.00 ($3.00 minus $1.00) per unit; while the Steak has a contribution margin of $2.50 ($5.00 minus $2.50). This margin represents the number of dollars gained as gross profit. When a portion of Hawaiian Chicken is sold, two dollars in gross profit is earned. New York Strip Steak, by contrast, produces two dollars and fifty cents in gross profit with each sale. Since foodservice operators bank dollars and not percentages, New York Strip Steak should be considered the more desirable of the two to sell. Consequently, the steak should be promoted as a dish.”
How the dish is promoted is up to the restaurant. It can be highlighted or given a premier place in the menu, itself—or it can be promoted in another way such as a meal of the day or special, with a discounted price being shown as $5.
Steaks can be very expensive. It follows that being offered a discount may well act as a consequential incentive
The Four-Quadrant Framework
Most menu engineering analyses classify dishes into four categories: Stars, Plowhorses, Puzzles and Dogs.
Stars: Both Highly Profitable and Popular
These are the menu’s top performers. They tend to be the darling of guests while generating high contribution margins for the restaurant.
Operators should protect these items by maintaining quality, ensuring consistent presentation, and positioning them prominently on the menu—typically first or in the middle within the highlighting of a box or with larger lettering in shading. Minor price increases may be possible, but aggressive adjustments to the dish can risk undermining demand. It is important that such items both in terms of ingredients and portion size ought not be altered.
Plowhorses: Popular but Less Profitable than Stars
‘Plowhorses’ are offerings that may drive traffic but don’t realize the high contribution margins of Stars. They are modestly profitable but more importantly, are ordered often.
As guest favorites, one ought not remove them. Rather, restaurants can improve profitability through modest portion adjustments, ingredient substitutions, or slight price increases, making them more profitable.
Also, pairing these dishes with profitable add-ons such as beverages, sides, or desserts—sometimes referred to as upselling—can burnish check averages. Having staff recommend add-ons can be a key contribution-driver for such items. Here training of staff weighs heavily into menu success. Beverages, especially, can act as highly profitable upsells because of they typically carry high contribution margins.
Puzzles: Profitable but Under-Ordered
‘Puzzles’ often represent missed opportunities. They may have excellent margins but for whatever reason, fail to attract the necessary attention to become popular.
Solutions include rewriting descriptions, relocating the item to a more visible position of the menu, showing an appetizing picture (for the range of restaurants that put photos on their menus—fine dining establishments, typically, wouldn’t engage in this), featuring them in promotional materials, or training servers to recommend them more frequently.
Dogs: Low Profit, Low Popularity
Not to insult our ‘man’s best friend,’ but dishes, which have come to be known as “Dogs” carry neither desirable contribution nor do they tend to get ordered much. So, when an item delivers neither volume nor profit, it’s likely the right time for retirement from the menu.
Removing weak performers can simplify kitchen operations, reduce inventory complexity and allow the restaurant to emphasize stronger products.
Pricing Strategy That Supports Profitability
Effective pricing extends beyond selecting a dollar amount.
One common tactic is called price anchoring, in which using a higher-priced item, acting as a kind of decoy, is placed near a target item. Such positioning makes the target item appear to offer better value. When customers compare the prices, the target item gains premium effect from the higher priced item adjacent to it.
With respect to relying on comparisons in menu engineering, operators ought to increasingly avoid long columns of prices, which encourage guests to overly compare costs rather than evaluate dishes on flavor offerings or overall experience.
Another effective strategy used by successful restaurateurs involves simplifying price presentation. Removing excessive punctuation and minimizing visual emphasis on currency symbols can reduce a guest’s sensitivity to price differences.
Significantly, experts caution against relying solely on discounting. Deep discounts may increase traffic temporarily but long-term reliance on this tactic risks eroding value perception, impacting long-term profitability.
Product Mix and How it Drives Profit
It is essential that a menu be viewed as a gastronomical portfolio rather than a collection of individual dishes.
Some items may be offered because they are bound to attract the eyes and preferences of customers. Others are presented due to the substantial profits they have been observed to generate. The most successful menus balance both preference and profitability.
Restauranteurs should examine and evaluate categories individually—appetizers, entrées, desserts, beverage, etc., and identify where profits are concentrated. Frequently, the most profitable opportunities do not lie with the main courses but rather on add-ons and complementary purchases.
Desserts, specialty beverages, premium sides, and upsell options often carry significantly higher margins than core entrées. Heightening the profile and visibility of such offerings can increase average guest spend without creating sticker shock.
Menu Design
Guests scan menus rather than read them in detail. According to usfoods.com, they spend around 109 seconds on average perusing the menu—but it rarely results in a definitive selection. The same website claims that 79 percent of guests report that they find it difficult to decide what to order off of a menu.
Focusing on the design aspect of menu engineering should help these pondering patrons make choices that leverage value and strengthen the profitability of the orders they make. So, Stars should be prominently emphasized with eye-catching fonts, followed by Plowhorses. There also is much decision-influencing power in the description of dishes:
Essential Elements of a Great Description
Using Sensory Adjectives: Words that evoke a sensory experience should be used like zesty, smoky, tangy, sharp, and melt-in-your-mouth—all help diners imagine the taste before they order. Indeed, one needn’t go back to Pavlov’s landmark experiment with dogs to find evidence that external stimuli like words can instigate a sensory response. If a menu can have the customer salivating before a meal is even served, half the battle, as the saying goes, may well already be won. Vivid descriptions create anticipation and make menu items more tempting, encouraging customers to order them. In addition to pushing gastronomical buttons, words such as homestyle, comforting, traditional, or indulgent evoke positive feelings and memories, making customers more likely to choose those dishes.
Inclusion of Preparation Techniques: Describe how the food is made. Expressive narratives of preparation methods such as —e.g., char-grilled, slow-roasted, pan-seared, wood-fired, "handcrafted," or even sealed in a clay pot with dough and simmered to perfection—all create a more vivid and appetizing image of the dish. Describing how meals are prepared is germane to distinguishing them from another restaurant’s similar offerings. Signature or traditional preparation methods distinguish a restaurant's offerings from competitors and make dishes feel more authentic or exclusive. Innovative preparation methods are especially useful in this regard, moving a given guest to try a preparation that seems familiar but carries a culinary twist that is novel or intriguing. It’s also true that customers often associate certain cooking techniques with higher quality, skill, and freshness. For example, "house-made pasta" or "freshly baked" suggests extra care and craftsmanship. In addition, such information can be key to enhancing a meal’s value proposition: diners are often more willing to pay higher prices for meals prepared using specialized techniques or premium cooking methods because they perceive greater effort and expertise.
Informing of Ingredient Origins: Mentioning local farms, family recipes, or imported ingredients can build trust in the quality of a dish (e.g., San Marzano tomatoes). Increasingly, where ingredients are sourced are becoming of growing interest to patrons. Customers often associate locally or responsibly sourced ingredients with fresher produce, better flavor, and higher-quality meals. Certainly, those for whom climate change is a core issue, a lower carbon footprint may motivate a guest’s choice in favour of locally sourced fare. Further, certain diners look for ingredients that are organic, fair trade, free-range, humanely raised, or sustainably harvested because these align with their personal values. Restaurants that clearly communicate where their ingredients come from often build greater customer trust. Transparency can reassure customers about the authenticity and quality of the food.
Sometimes it’s worth mentioning how a dish can be shared. US Foods reports that around sixty percent of couples like to share dishes.
Some 72 percent of Americans like to see pictures of dishes on menus. That said, one will hardly ever see a picture on a menu of a fine dining establishment. Pictures are not considered up-market, and often take away from elegantly presented menus that focus on other graphics than food on a plate. For these restaurants, training staff is just as significant as the engineering of the menu, itself. In such places, a well-trained waiter will guide the customer through the menu, asking them questions, and then recommending dishes to suit their preferences. Often high-margin accompaniments are recommended like fine wines and other beverages. Some will recommend the Full Monty per se: aperitif, appetizer, main courses with beverage pairing (not necessarily an alcoholic beverage—mocktails and fine teas are increasing in popularity) followed by desert and a digestive.
Restauranteurs are better off using old fashioned menu. If they do use digital aids, the add-on should certainly not complicate the ordering process. Only one in six diners say they know how to use QR codes as menus, and 95 percent of diners still prefer physical menus. Indeed, a slight majority of diners say QR codes end up slowing down the ordering process rather than making it more efficient. People go out to eat as much for the interaction as for the food. Utilizing a host/hostess and wait staff as well as a good barman/maid can complete the dining experience in a way that makes ordering online fall woefully short.
A Practical Menu Engineering Audit
Restaurant operators looking to improve profitability cannot afford to set their menus in stone. They must view the menu as an evolving entity. While some operators, review their menus every month, many can begin with a simple quarterly review consisting of the following steps:
- Export 60–90 days of sales data from the POS system with emphasis on grabbing two metrics: no. of sales and contribution margin.
- Extract product mix report (or p-mix)
- Calculate gross contribution by (taking item price and deducting item cost) divde by item price and multiply by 100 percent to get gross profit margin
- Calculate food costs and contribution margins for every item.
- Rank items by profitability and popularity.
- Categorize items as Stars, Plowhorses, Puzzles, or Dogs.
- Promote Stars through placement and visibility.
- Improve margins on Plowhorses.
- Reposition and market Puzzles.
- Remove or redesign Dogs.
- Review menu design, pricing presentation, and category organization.
- Repeat the process every quarter.
The Bottom Line
The fact, on average, a guest will less than two minutes looking through the menu of a given restaurant, explains why menu engineering is often characterized the one of the industry’s most underutilized profit tools. If during that period of critical consideration when guests decide what to order, the tool succeeds if it can guide guests toward choices that deliver value to both customer and operator. Considering the time within a well-engineered menu is deployed, its power to influence should certainly not be in dispute.
Usfood.com reports that the average American diner takes 12 minutes to answer the question: what do you want for dinner. And that’s just a general question. It can take as much as 30 minutes or more for a party to order once they’ve been seated at a restaurant. Given the costs of low guest turnover, a well-engineered menu can speed up the process of moving guests in and out and end up catalyzing the whole process of getting diners on the path of their dining experience. Operators ought likely to show unanimity in the view that this is highly desirable—especially during rush periods.
As a guest makes their selection, connecting this choice to drivers of profitability, should not only improve item economics but also strengthen the menu as a key component of the restaurant as commercial system. Also, reduction in downtime means an increase in profit-making time.
In a highly competitive industry where profit margins are frequently measured in single digits, the small often subtle adjustments that menu engineering provide can add up to a meaningful competitive advantage.