Margin management

Margin management: Lower your food costs with menu explosion 

Do you know your theoretical cost of goods sold?  How does it line up with actual cost of goods sold?  The experts at fsSTRATEGY show you how to “explode” your menu to build profits and lower your food costs.

What is menu explosion?

Menu explosion is a methodology of calculating an accurate theoretical cost of goods sold (COGS).  It is a critical first step in the process of cost controls because without knowing what your COGS should be, it is impossible to know if a problem exists or how to solve for it.

Standardizing the recipe

The first step in the menu explosion process is to standardize the recipes.  Standardization is a record of how a recipe is prepared including a list of ingredients, ingredient quantities, the method of preparation in the recipe and the yield/output of that recipe (three cups, two portions, etc.).  Quite often this is done informally in the mind of the chef, in a notebook, or even scribbled on a napkin.  The menu explosion method formalizes the process and builds a model that is efficient, easily modified and able to be analyzed.

 

“Exploding” the menu

Once the recipes are compiled, break them down to their lowest common denominator or sub-recipes.  This is the “explosion” part of “menu explosion,” and it is a stage that adds significant efficiency to your model. 

Consider a recipe for a large hamburger.  Assume that the burger patties are made fresh in-house, the large beef patty uses the same seasoned beef mix as a small hamburger patty, and that the seasoning blend is also used on other items on the menu.  Four recipes have just been identified from a single, seemingly simple menu item: large hamburger -> large beef patty -> beef burger mix -> seasoning blend.  Why did we break it down that way? Why not just list all of the ingredients for the burger patty in the recipe for the hamburger?  The answer is efficiency.

Ardent Mills Organic 2016

If you were to change the recipe for the secret-spice blend, the menu explosion model requires you to make a single revision to the spice recipe that will automatically update all other linked recipes.  Conversely, if listed the spices directly in the hamburger recipe and later decided to remove the black pepper, we would have to update every recipe that used that blend.

A sub-recipe, such as a spice mix, is likely to be blended in a larger batch and then portioned as required, rather than measured independently to order.  The explosion method, therefore, better reflects real life application because it treats spice mix as an independent recipe.

Master ingredient list

Much like how the sub-recipes are used within a recipe, all ingredients should link to a master ingredient list.  The master ingredient list in a menu explosion model is a list of every ingredient used in the model.  The list should include case sizes, case costs, and yields (a percentage that represents what is left once an ingredient is prepared for use).

By linking to the master list, a change only needs to be made to an ingredient in one place.  This also ensures that that change will be updated accurately throughout the model.

I built my model…now what?

The costing of a recipe is only the beginning of the power of the menu explosion process.  Once the recipe model has been built and menu item costs have been determined, we can use that information in a variety of ways. 

Build your pricing strategy based on a balance of cost and market value.  If the world is willing to pay $25 for a steak dinner, you need to make sure that you can afford to sell that steak dinner for that price.  With an accurate food cost estimate, you can assess the feasibility of offering a menu item at a specific price.

Determine your theoretical COGS based on sales mix.  Once each item’s cost has been determined, and the menu price has been assigned, the menu explosion model can use the sales mix (number of each menu item sold for a given period) to determine the blended average theoretical COGS. 

If the theoretical COGS is in line (within 1.5 per cent) with the actual costs (starting inventory + purchases – closing inventory) from the same period then it is likely that recipes are being followed, no one is stealing and product is not being wasted.  If the theoretical and actual numbers are not within the 1.5 per cent range, then you can take steps to identify and track the issue.  Once the issue is identified, corrective action should be taken immediately.

Menu explosion is also the first stage in the menu engineering process.  You can read more about menu engineering here.

For more information or help with creating a menu explosion go to www.fsSTRATEGY.com

 
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