1. Maximising the profitability of a restaurant’s wine menu using revenue management techniques of menu engineering in simulated environment

2. Revenue Management & Restaurants
Revenue Management: (Kimes, S.E. (1989))
The application of information systems and pricing strategies to:
allocate the right product
to the right customer
at the right place
At the right time
Most effective when:
capacity relatively fixed
demand predictable but variable and somewhat uncertain
inventory perishable
costs & prices are appropriate

3. Revenue Management & Restaurants
In a Restaurant the fixed capacity constraint & variable / uncertain demand are:
Seats
Seasonality of business
Perishable inventory is not food or beverage product but the time a seat or table is available
If seat or table not occupied this part of restaurant’s inventory perishes
Appropriate costs and pricing structure relate to fixed and variable costs and their effect on profit

4. Revenue Management & Restaurants
As restaurants strive for profitability the revenue management technique of “Menu Engineering” has been coming to the fore.
Focuses on revenue generation with profitability as the goal.
By evaluating individual menu items and rating them on the basis of:
Popularity
Profitability
The technique strives to maximise the positive financial effect on a restaurant menu.
Lots of work done on the food menu….we have taken a look at the Wine menu
Using our restaurant simulator program – SIMR we have diagnosed and evaluated the wine component of the restaurant menu.

5. Simr – The Restaurant Simulation Development
Conceived in 2003 & developed until today as:
Experiential Learning tool for academic and Industry use.
Leverages gamification to engage students and restaurant leaders, creating a dynamic and experiential learning environment
Since 2009 integral part of capstone 4th year course at Ryerson University & being used within other Canadian hospitality colleges
Since 2010 integral part of the Sircorp, (58 unit chain) Restaurant Company’s accelerated leadership program. In May 2016 just completed our 7th year!
Since July 2015 fully available via “the Cloud” for use in College/University Courses and Corporate Training Programs.

6. Simulation Enhancement
Building on this development a Menu Engineering module has just been added
To help simulation participants understand and develop the concept of menu evaluation and analysis
Our Paper:
discusses the application of Menu Engineering in a simulation environment
focussing on the wine menu component
illustrates how menu engineering can be used to increase the profitability of a wine menu
and how this can be applied to a “real world” wine menu

7. Simr – The Restaurant Simulation
Simr is a Total Enterprise Simulation that allows for:
Active application of knowledge and skills to restaurant problem solvng.
Deals with the entire restaurant organisation providing balanced number of decision variables in:
Operations
Marketing
Finance
Seen as effective dynamic training vehicle as alternate to Lectures & Case Studies
Emphasises Decision Making & Profitability

8. Menu Engineering and Menu Pricing
Menu Engineering is a method of menu analysis and pricing
Considers the “Profitability” and “Popularity” of competing menu items
A technique to help us diagnose a menu and achieve profitability objectives
How good is the menu?
What are we trying to accomplish with it?
How frequently should we evaluate it?
These are the key questions Menu Engineering addresses.

9. Menu Engineering and Menu Pricing
Menu Engineering can be viewed as Revenue Management for Restaurants .
Combining the “right” menu items, with the “right” prices
To ensure customers choose the items the restaurant wishes to sell.
This will maximise the revenue derived from the restaurant’s limited seat capacity.
We have only one opportunity to determine how much a customer spends – menu selection
While lots of focus is on food our wine menu may be our most profitable area

10. Menu Engineering Kasavana & Smith
PROFITABILITY
Contribution Margin
Low High
High:
PLOUGHORSES STARS
Low: DOGS PUZZLES P O U L A R I T Y V O L U M E

11. What is Menu Engineering?
Concept of: Stars, Dogs, Puzzles & Ploughorses
Promote “Stars”
Exploit “Ploughorses”
Solve “Puzzles”
Eliminate “Dogs”

12. Atkinson & Jones: Four P’s of Marketing
PROFITABILITY Contribution Margin
Low (Poor) High (Good)
2 1
High: Price: Up Price: Up/Down (Good) Product: Modify Product: Do nothing Promotion: Do nothing Promotion: Sell Place: Do nothing Place: Do nothing
4 3
Low: Price: Review Price: Down (Poor) Product: Replace Product: Rename Promotion: Do nothing Promotion: Sell Place: Do nothing Place: Reposition P O U L A R I T Y V O L U M E

13. Simulation Adjustment Results
We took 2 wine menu Items identified as Puzzles and Ploughorses
Over a period of 3 months changed them both to Stars by:
Changing the Price
Modifying the Product
Quantity
Quality

14. Considerations when using menu engineering in a simulation
Menu Engineering technique uses averages. So:
Some wine menu items must fall into the less desirable low categories
When low category items are eliminated others, of necessity must now fall into the less desirable categories
“ The application of matrix analysis could result in a never ending battle of adjusting weak items, only to find the above limitation formerly strong items falling below average”. (Hayes & Huffman.(1985))
However adjustments are made and justified to improve Profitability. If this happens we can live with this limitation!

15. Considerations when using menu engineering in a simulation
We are using a simulation so playing with and modifying variables is something of a game!!
Our Simulation does not allow us to take advantage of the full power of the Menu Engineering technique
Menu item name changing does work in reality but is not part of the revenue generation model in the simulation
It is also not possible to reposition or promote individual menu items.
The simulation does have a major marketing focus allowing participants to promote the restaurant as a whole and/or individual meal periods.

16. Conclusions…….!!!
Menu Engineering in simulated environment has enormous potential value to a restaurant.
On the wine menu focussing on individual items allows the workings of the wine menu to be understood
Wine menu diagnosis and evaluation is a key to successful restaurant beverage operations
Knowledge transferable to real restaurant wine menu using spreadsheet structuring (we have a template if interested.)
In real world restaurant the full impact of all Menu Engineering recommendations on a wine menu can be achieved.
Simr simulation provides a unique way to evaluate the profitability of a restaurant’s wine sales.