In my previous article, we ventured into the world of restaurant revenue management (RM) tools. In this article, we’ll delve into the “All-Purpose” shelf, or the Swiss Army Knife of the RM toolbox.
The Swiss Army Knife has four tools you can use regardless of how busy or slow your restaurant is. Menu design and menu engineering can not only help you increase your profitability but can also enhance the customer experience. As I’ve discussed in previous articles, strategic pricing can help you make sure that you’re getting the most out of your restaurant as you can while maintaining customer satisfaction. In addition, appropriate upselling and suggestive selling can help drive your average check and if used appropriately, can also help improve the guest experience.
Let’s start off with menu design. Think of your menu as a blank piece of paper (or a blank screen) that you can use to generate revenue. Think about how Amazon designs their webpage or how Google designs their landing page. It’s not done randomly but is of course designed to generate revenue and profit. So, how can we do this for a restaurant? Essentially, there are four key things you should focus on: how you name your menu items, how you describe your menu items, how you highlight items that you’d like to sell and how you display the price. If you want to learn more about these and how they work, take a look at this short video that I put together. Also, DoorDash did a great study on digital menu design that you should definitely check out.
Remember, good menu design helps generate more revenue and profit, no matter how busy or slow you are. And, if you rely heavily on digital channels, the menu design is what communicates your restaurant to your customers.
Menu engineering, when combined with good menu design, becomes even more powerful. Basically, menu engineering is all about figuring out which of your menu items helps you drive your bottom line. You don’t need to get all that fancy with menu engineering—simple averages work just fine. Some key things to remember: (one) be sure to divide your menu items by category (i.e. don’t mix desserts with mains!), (two) get a good idea of your food costs for each menu item and (three) set up a regular schedule for going your menu engineering analysis.
Calculate the contribution margin (price—food cost) and then calculate the average number sold and average contribution margin (CM) for each or your menu categories. From there, classify each menu item as a star (above average sales and above average CM, cash cow (above average sales and below average CM), puzzle (below average sales and above average CM) or dog (below average sales and below average CM). Menu engineering is a simple tool that when systematically applied leads to additional profit no matter how busy you are.
I’ve talked extensively about pricing in some of my previous articles, so I’ll focus here on key insights. Smart pricing, adaptable to your demand levels, is a cornerstone of success. Priceff‘s strategy of varying delivery prices based on demand illustrates how this approach can increase revenue and stabilize demand. Lower prices can be used to try to divert demand to your slow periods, but not be available during your busy times.
And, pricing ties right in with menu design and engineering. For example, DynamEat integrates their pricing recommendations with menu engineering and menu design.
The essential principles to remember about pricing are to use rate fences, ensuring that different prices have clear reasons; to think carefully about how you’ll convey your prices; and to present prices in a way that emphasizes value, such as framing them as discounts.
Upselling and Suggestive Selling
The final tool on this “all-purpose” shelf is the upselling and suggestive selling tool. The focus here is on driving average check. The first thing to think about here is digital. Orders from digital menus have about a 10–30 percent higher average check than from traditional ordering methods. For example, Bite found a 38 percent lift in average check for the kiosk orders from Crazy Bowls and Wings restaurant.
Why does this happen? Well, one thing is that customers feel less rushed and have more control of the situation, but the other is because of good add-on suggestions. Good add-on prompts are data driven (forget the blanket ‘would you like fries with that!’) and customize the suggestions to the customer based on facial recognition (as with some of the Bite products) and previous customer behavior. For example, OpenCity, a company that provides AI-powered drive-through orders uses Tori (their AI) to suggest items and upgrades. They have found up to a 5 percent upsell rate for desserts and that 25 percent of customers order upgrades for sides. The net result has been up to a 4 percent revenue increase.
And, the DoorDash study that I mentioned earlier found that successful menus had appropriate add-ons that allowed customers the ability to customize their orders (and also helped drive average check).
Technology-based prompts are also a lot more consistent than those provided by servers and counter staff. Again, upselling and suggestive selling is something that can work for you regardless of your demand level, and if it’s tech-enabled, it works even better.
The ”All-Purpose”shelf tools are practical and essential for any restaurant, regardless of size or style. They form the core of a successful revenue management strategy. By focusing on improved menu design, regular menu engineering, strategic pricing, and adept upselling techniques, you can increase profitability and enhance the customer experience. These tools are not just theoretical concepts; they are actionable strategies that can be implemented in your restaurant today.
In my upcoming articles, I’ll take a closer look at the “Hot” and “Cold” shelves of our RM toolbox. These shelves contain specific strategies for different demand patterns in your restaurant. The ‘Hot’ shelf tools help you manage peak hours, while the ‘Cold’ shelf strategies focus on attracting customers during slower times.
Until then, start putting the “All-Purpose” tools in your Swiss Army Knife to use.
Sherri Kimes is an Emeritus Professor at Hotel School at Cornell and specializes in pricing and revenue management. She has actively involved with teaching, conducting research and consulting in restaurant revenue management for the past 25 years. She is passionate about helping restaurants increase profitability. She can be reached at firstname.lastname@example.org.