Menu engineering and activity-based costing

Abstract

PurposeThis paper aims to examine whether using menu engineering (ME) together with activity-based costing (ABC) for menu analysis provides new insights into true menu profitability. The traditional ME approach only uses food costs to determine the contribution margin (CM) of individual menu items. This combined approach uses both food and traceable operating costs to estimate CMs more accurately.Design/methodology/approachAn improved ME model was developed and tested in an oriental restaurant in Brazil. Direct observation of restaurant activities allowed most costs to be traced (not simply allocated) to individual menu items.FindingsThe results revealed small differences in the rankings between the traditional approach and ABC/ME, demonstrating that the integration of ABC with ME made it to possible to identify increased food-costs and lower CMs for all groups of menu items. The results also show that ABC methods are applicable to an oriental-style restaurant.Research limitations/implicationsJust one restaurant and only 80 per cent of the menu were examined in this study. Future research should apply the model used here to other restaurant types located in different geographical areas to validate the approach.Practical implicationsThe results suggest that ME can be improved upon by first assessing variable costs using ABC methods.Originality/valueThis paper combines two different analytic techniques (ME and ABC) into a new approach that reveals the true picture of profit and loss for a menu from a restaurant in Brazil.