Reduced restaurant menus offer opportunity for profitability and simplicity

Q&A with RMS menu engineering expert on top 7 reasons to reduce your menu

The analogy may be obvious, but as with any successful recipe, a sustainable and profitable restaurant also comes down to using the correct mix of ingredients. Now that most everything we counted on in the restaurant industry has been upended, pre-COVID-19 combinations need adjustments. The second half of 2020 calls for more than a new recipe — instead, it demands quite literally a new menu. 

While the restaurant industry has no historical reference point to assist with operating during a global pandemic, data remains constant. Granted, these days, the data is quite different, but still, the information can be analyzed and acted upon for a new way forward. With that in mind, RMS spoke to one of our current menu engineering experts, Justin Pridon, VP Consulting, to get his thoughts about how a reduced menu can offer restaurant owners and operators an opportunity for profitability and welcome simplicity.

Why and how should franchisors and franchisees consider a reduced menu

Pridon: In the past several months, reduced menus were a matter of necessity; now, we can try to view them as an opportunity.

When restaurants first encountered the major headwinds of COVID-19, limiting and re-engineering menus was the first logical response. Issues around limited supply, labor shortages and feasibility (such as items designed for dining room, not carryout) meant that a truncated menu was not only a prudent decision but an absolute necessity.

In most cases, to get to the first iteration of a limited menu, the process was pretty similar among restaurants:

  • Start by considering product availability.
  • Factor in labor components like item complexity (“Can we make this with limited staff?”).
  • Compare items’ profitability to determine if each item should make the revised menu cut.

In other words, shift consideration from “Can we do it?”to “Should we do it?”

What are the benefits of a reduced menu?

Pridon: From a profitability standpoint, it should be mentioned that even pre-COVID-19, many restaurant companies had a strong desire to streamline menus, with expected returns to both efficiency and increased profitability.

Though the pandemic made many of these changes necessary, it also gave organizations a good opportunity to reset, and slowly rebuild menus more strategically, with a focus on eliminating some of the “sprawl” that made it to their menus over time. This shift will likely stick around. Future menu iterations will apply lessons learned from the necessity of limited menus but with an intentional focus on profitability and optimization.

What’s the ROI of a reduced menu?

Pridon: Expected returns have A LOT to do with a number of factors, including your starting point — How large is your menu, and what’s the size of mix across products? — and your segment: Do you specialize in new trends, or do you offer a unique twist in a traditional segment? ROI will be unique to each brand.

From a high level, however, if you take “simplification” as a concept of menu engineering, we know it’s one of the most powerful tools to affect profitability. When we help our clients with menu engineering, we look among the data for opportunities to positively influence guest behavior. For example, to support PDQ, we looked at shifts in spend since the start of the pandemic, including changes in check by revenue channel (delivery vs. drive-thru vs. takeout), and changes in menu mix and item attachment, to guide both menu development and the marketing strategy.

What are the pros/cons of reducing menus?

Pridon: The biggest pros are better efficiency in service (which creates increased overall satisfaction and intent for the guest to return) and better guest purchase behavior for greater profit.

The cons can include accidentally affecting guest traffic and cannibalizing the positive effects from increased efficiency and larger purchases. Taking items off a menu can be risky, especially if you eliminate an item the guest was specifically coming in for. This can be a danger for menu items you think may not be “popular” but that actually are unique items that draw in a very specific clientele that simply will not trade to other offerings. 

There can also be something said of the “halo effect” that a degree of item diversity can provide. People may not order everything on the menu, but seeing those rarely-selected items may make them feel good about the concept in general or better about the item they do choose to purchase. Menu simplification should be approached very strategically, looking at your transaction-level data (and guest groups) to best evaluate upside and risk.

What menu cuts seem to be working now? What are some reduced menu actions and approaches that aren’t working and/or should be avoided?

Pridon: Restaurant brands that approached menu cuts cautiously have fared better. The advantage these groups have, over those that may have cut their menus too deeply, is that they retained guests who were looking for a bit of normalcy and their favorite items. 

Secondarily, the restaurants that kept a firm hold on the items or groups of items core to their identity (and resisted any attempts at over-modification) most likely maintained more positive momentum.

Again, the biggest pitfall to avoid when pursuing a reduced menu is confusing “unpopular” with “unneeded” and understanding that any menu simplification is a new starting step. It’s important to think ahead and make sure the actions you take now don’t limit future growth or adversely impact changes that will no doubt be necessary in the future.

Can reduced menus help restaurants plan for the future?

Pridon: Yes! Regular menu evaluation is one of the healthiest activities restaurants can do. Item cycling (deletions and additions) is essential for future-proofing. Finding items on the menu that are holding you back (whether operationally or in profitability) and removing them makes way for greater focus on the items that help your business and create better financial returns. 

Another benefit of a reduced menu is simplification. Real estate on the menu is important, and usually, it’s very limited. And having too much on a menu can impact how effective your other marketing efforts are at guiding purchasing decisions.

What’s a step that should not be overlooked when reducing a menu?

Pridon: Most menu engineering efforts succeed due to thorough analysis and testing of any changes BEFORE large-scale implementation. Before change became a necessity (pre-COVID-19), testing was a step brands often neglected that they absolutely shouldn’t. Testing different menus/deletion/styles can lead to valuable insights before full commitment.

  • A data-driven restaurant menu is a proven way to trim margins and increase profits. Whether it’s analyzing industry data or our clients’ POS transactional data, for the past 25 years, RMS data scientists have been doing just that. On average, many of the numerous menu design strategies we’ve completed for clients have delivered margin increases upwards of 2%.

RMS is here to help you and our industry survive. If you’d like to talk to us about a reduced menu, contact us today.

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