Smaller, independent restaurants might want to follow fast-casual chains and consider trimming their food options — by, like, 70 percent. New research from restaurant management platform Upserve shows that many restaurants, both quick service and full service, have way too many items on their menus: Specifically, the company has found that a massive 80 percent of a restaurant’s food sales come from only 16 percent of menu items.
“The most important thing that data tells us is that a bigger menu does not necessarily mean a better menu,” says Rosie Atkins, vice president for product at Upserve. Research from the National Restaurant Association supports that idea. While some believe that keeping food costs low will increase profit margins, the association’s resource for restaurant management calls that a myth, siding instead with Atkins’ stance. “The issue is not how high or low food costs are, but rather how many gross profit dollars your menu items generate,” they write. “That’s why menu items should be promoted based on their gross profit contribution (dollars) rather than having a low food cost (percentage).”
This can be tricky, because so much of restaurants’ expenses goes to purchasing ingredients. In 2014, Mazonne and Associates, a merger advisory firm, found that for many restaurants, 36 percent of costs went to food purchases. This yields a profit margin of about five percent, up from 3.5 percent in 2010. The report also showed that larger companies and chains, like McDonald’s, could take advantage of economies of scale and boost their margins to as high as 20 percent, something that is harder for smaller restaurants to do. On top of that, seasonal changes and fluctuating wholesale prices can make food costs unpredictable.
This is one of the reasons restaurants fail in the first few years of operation, according to the NRA. So where does the money come from?
Upserve analyzed millions of transactions across 90 days from restaurants around the country, ranging from quick serve to full service. Overall, they discovered that food accounts for 66 percent of most restaurants’ menu sales. Specifically, entrees make up 49 percent of food sales, appetizers 31 percent, and desserts 19 percent. In the beverage department, which contributes to 34 percent of sales, wine and beer accounts for 19 percent of beverage sales, while other alcoholic beverages such mixed drinks contribute as much as 41 percent.
But data can’t account for every important aspect of a menu. There may be some signature items that serve the purpose of establishing the restaurant’s niche or building its brand. An Italian restaurant can’t stop selling garlic bread because it isn’t selling as well, for example. A nice full-service restaurant may include an extensive wine list, even if most bottles on the list are not popular. Atkins recommends restaurants consider challenging these notions.
“Take a look at what happens if you don’t have it on your menu for a few days,” Atkins says. Limited menu items are almost a given in the rapidly growing fast-casual market, and if more restaurants start reviewing the “value” of their offerings, it should come as no surprise if minimalist menus become a new restaurant norm. Just hope your favorite dish is one of the 20 percent of items or so that are actually worth keeping around.