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

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

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

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.

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.

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

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

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.

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

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

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

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

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

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!

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.

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.