Mastering the menu: How engineering, BCG Matrix, and dynamic pricing boost restaurant profits

Restaurant management is constantly evolving, seeking innovative strategies to enhance profitability. Three such strategies—menu engineering, the Boston Consulting Group (BCG) Matrix application, and dynamic pricing—are proving to be particularly effective.?

Let’s review how these methods can significantly increase a restaurant's profitability, backed by data and industry insights.

Menu engineering: Crafting profit-driven menus

Menu engineering is a systematic approach to analyzing a restaurant menu's performance based on the profitability and popularity of each item. This method involves categorizing menu items into four groups: Stars (high profit, high popularity), Plow-Horses (low profit, high popularity), Puzzles (high profit, low popularity), and Dogs (low profit, low popularity) -I know, and ask myself the same questions….Why those names, BCG?- Anyway….by understanding these categories, restaurateurs can strategically design their menus to emphasize high-margin dishes and either improve or eliminate weaker performing ones.

A study from Cornell University’s School of Hotel Administration underscores the effectiveness of menu engineering, revealing that restaurants can enhance their profits by as much as 15% simply by redesigning their menus based on the analysis of item performance. For example, placing 'Star' items in visually prominent positions on the menu can significantly increase their sales, while reconfiguring or removing 'Dog' items can reduce losses.

Applying the BCG Matrix to restaurant menus

Traditionally used in strategic business analysis, the BCG Matrix can also be applied to menu management in restaurants. This method helps managers identify which dishes should receive investment ('Stars'), which should be maintained due to their reliable performance ('Cash Cows'), which are risky but with potential high returns ('Question Marks'), and which should be discontinued ('Dogs').

By applying the BCG Matrix, restaurant managers can make more informed decisions about where to allocate resources, such as marketing dollars or ingredient purchases, to maximize returns. For instance, promoting 'Question Mark' items through special offers or improved presentation might turn them into 'Stars', increasing overall profitability.

Dynamic pricing: Adapting to market demand

Dynamic pricing, a strategy borrowed from the airline and hospitality industries, involves adjusting prices in real-time based on demand, time of day, or specific conditions (like weather). Restaurants are increasingly adopting this approach, using technology to adjust menu prices in response to varying factors. This can mean higher prices during peak times or special discounts during off-peak hours to attract more customers.

A report by McKinsey & Company highlights that dynamic pricing can increase revenue by up to 5-10% by aligning prices with market demand. This pricing strategy not only maximizes revenue during high-demand periods but also helps manage customer flow and improve service quality during peak times.

Want some numbers or Case studies?

Eataly, an Italian food marketplace and restaurant chain, has successfully implemented menu engineering and dynamic pricing. By carefully analyzing sales data, Eataly has optimized its menu to focus on high-margin dishes that appeal to its clientele, and it uses dynamic pricing for special events and peak dining times. The result has been a noticeable increase in average per-customer spend and overall profitability.

Chez Panisse, a restaurant in Berkeley, California, applies the BCG Matrix to its menu development. This approach has allowed them to sustain high profitability by focusing on 'Star' dishes made from locally sourced, seasonal ingredients, which also reinforces their brand's commitment to sustainability and quality.

A good example on how this can be done seamlessly is Dynameat.io