Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Menu Engineering to Boost Profits
Transcript
- Lucas: I was looking at a franchisee's P&L last week — a multi-unit QSR operator in the Midwest — and one thing jumped out: his top-selling item was practically a loss leader. It moved like crazy but barely covered food cost. Meanwhile, a sandwich with a forty-percent margin sat buried on page two of his menu board, ordered maybe once an hour. Luna: So he was literally losing money on his most popular item. That's the menu engineering problem in a nutshell. Lucas: Exactly. And it's what we're talking about today: how franchisees use menu engineering to boost profits. Not just rearranging items — it's a data-driven strategy that looks at each menu item's profitability and popularity, then positions it to maximize revenue. Luna: This isn't a new concept. I remember reading about it back in the eighties, when some consultants at the Michigan State University hospitality school really formalized it. Lucas: Right — the classic matrix. You plot every item on two axes: popularity on one, profitability on the other. That gives you four quadrants: stars — high popularity, high profit; plowhorses — high popularity, low profit; puzzles — low popularity, high profit; and dogs — low popularity, low profit. Luna: And the goal is to move items out of the bad quadrants into the good ones. But how do you actually do that without just slashing the menu? Lucas: Well, let's start with the franchisee I mentioned. He runs four locations of a national burger chain — I'll call him Mike. Mike did a full menu analysis using his POS data. He found that his top-selling combo — the double cheeseburger meal — was a plowhorse. Sixty percent of orders included it, but its margin was only twelve percent because of beef costs and the volume discount he'd built in. Luna: So what did he do? He couldn't just drop it — customers would revolt. Lucas: He didn't drop it. He repositioned it. On the physical menu board, he moved the double cheeseburger from the center spot to the top right corner — a lower-visibility position. Then he took a puzzle item, a chicken wrap that had a forty-two percent margin but only eight percent of orders, and moved it to the center. He also increased the font size on the wrap and added a small 'chef's pick' badge. Luna: And that shifted behavior? Just by changing layout and one little badge? Lucas: Over twelve weeks, the wrap's order share went from eight percent to fourteen percent. The double cheeseburger's share dropped to fifty-two percent — still the top seller, but less dominant. And gross profit on the combined menu went up eight percent, because every wrap sale replaced a low-margin burger sale. Luna: That's huge. And it didn't cost a thing — just a PDF change for the menu printer. Lucas: Exactly. And Mike went further. He also looked at his drink menu. Fountain drinks are high-margin — typically eighty-five to ninety percent — but he had them listed as 'small, medium, large' without prices. He added prices and highlighted the medium as 'best value.' That nudged customers toward medium instead of large, which actually increased margin because large cups cost more in syrup and ice. Luna: So he traded down in size and up in margin. That's counterintuitive, because most franchisees think bigger is better. Lucas: Right. And that's the core of menu engineering: it's about steering customers toward items that maximize contribution margin, not just check average. A smaller drink that costs less to make can be more profitable than a larger one if the price difference doesn't match the cost difference. Luna: What about items that are puzzles? You said the chicken wrap was a puzzle — low popularity, high margin. How do you convert puzzles into stars without turning off customers? Lucas: There are a few levers. First, placement — put them in high-traffic zones on the menu. People read a menu board like a book: top left to bottom right. The top left is prime real estate. Second, use visual cues like boxes, icons, or photos. A photo can increase orders of an item by thirty percent or more, according to some studies. Luna: But photos also add printing costs for physical menus. Though with digital menu boards, you can swap them instantly. Lucas: That's where the smart franchisees are winning. Digital menu boards let you test and iterate in real time. You can run an A/B test: one store shows the wrap with a photo, another without, and you compare results over a week. Then you roll out the winner across all units. Luna: So the technology makes it easier, but the principles are the same. I'm curious: what about dogs — items that are low in both popularity and profit? Why do they even stay on the menu? Lucas: Sometimes they're legacy items from the franchisor's national menu that the franchisee is required to carry. Other times, they're emotional attachments — the founder's favorite dish that no one orders. In Mike's case, he had a salad that sold maybe three a day and had a thin margin because of fresh ingredient waste. He couldn't remove it entirely because the franchisor mandated a salad option, so he dropped the price slightly and moved it to a bottom corner, then cross-sold it with the wrap combo. Orders didn't go up, but waste went down because he started prepping fewer. Luna: So he minimized the damage. That's practical. But what about the psychology part? I've seen studies that the number of items on a menu affects how people decide. Lucas: Hick's Law — the more choices, the longer it takes to decide, and the more likely people default to familiar items. A streamlined menu can actually increase orders of engineered items. Some franchisees cut their menu by twenty percent and saw overall sales stay flat but margins improve because customers chose higher-profit items. Luna: But you have to be careful. If you cut too many popular plowhorses, you might drive customers away. It's a balance. Lucas: Right. Menu engineering isn't about eliminating favorites — it's about guiding choices. Another tactic is pricing anchors. You list a high-priced item next to a moderately priced one to make the moderate one look like a deal. For example, a $15 premium burger makes a $12 signature burger seem reasonable, even if the $12 one has a higher margin. Luna: That's straight out of behavioral economics. Dan Ariely's 'decoy effect.' Lucas: Exactly. And it works in franchises. I saw a pizza franchisee add a 'deluxe' large pizza at $22, while his regular large was $18. The regular's orders went up fifteen percent, even though the deluxe barely sold. Because $18 suddenly felt like a bargain. Luna: So the deluxe was a decoy, not meant to sell. That's clever. But doesn't the franchisor sometimes restrict pricing? Lucas: Often yes. Many franchise agreements have price ceilings or require approval. But menu engineering isn't just about price — it's about placement, description, and bundling. You can bundle a puzzle item with a star as a 'combo' to increase its trial. Mike bundled his chicken wrap with a drink and fries at a slight discount, and that alone doubled wrap orders. Luna: And the bundle's margin was still higher than the burger combo because the wrap cost less to make. Lucas: Right. That's the math. So the key takeaway: every franchisee should run a menu analysis at least quarterly. Pull the data from your POS — item-level sales, food cost, contribution margin. Then plot your matrix. Identify your plowhorses and puzzles, and start with one or two changes. Luna: And test before rolling out system-wide. Even a small change — like moving a item from the bottom right to top left — can have a measurable impact. Lucas: Mike's story shows that. He made four changes total: repositioned the burger, moved the wrap, added a badge, and adjusted the drink pricing. Over a quarter, his overall margin went from 58 percent to 63 percent. That's five points, on four million in revenue — an extra $200,000 in profit. Luna: For just some layout tweaks. That's the power of menu engineering. Lucas: And it's a tool that works across franchise types — not just QSR. I've seen it in ice cream shops, sandwich chains, even car wash membership menus. Anywhere you have a list of options, you can engineer it. Luna: That's a good point. A car wash menu has different tiers — basic, premium, deluxe. The same principles apply. Lucas: You know, conversations like this are exactly why we do this show. And if these episodes have helped you think differently about your business, we'd love your support. This podcast is entirely listener-supported — no ads, no sponsors. You can buy us a coffee at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. It keeps us going, and we really appreciate it. Luna: Yeah, we do this because we genuinely love digging into these topics. So if you've gotten value from it, that's the best way to keep it ad-free. Lucas: So let's get back to something practical. One mistake I see franchisees make: they engineer the menu once and never revisit. But customer preferences change, ingredient costs change. What was a star six months ago might be a plowhorse today. Luna: Especially with supply chain volatility. Beef prices spike, and suddenly your star burger becomes a puzzle. Lucas: Exactly. So the best franchisees build a quarterly review cycle. They track the matrix over time, and they also watch for new items from the franchisor. When a new LTO comes in, they analyze where it fits before adding it, instead of just slotting it in. Luna: And they involve their managers. The people on the ground see what customers actually say — 'I wish you had a smaller portion' or 'that salad is too expensive.' That's qualitative data that complements the numbers. Lucas: Good point. Mike actually got the idea to add the chef's pick badge from a shift manager who noticed customers hesitating at the menu board. So it's not just data — it's observation. Luna: So for any franchisee listening: pull your item-level sales and food costs today. You might find a hidden star or a dog that's eating your margin. Lucas: And if you want a simple framework: start by identifying your top three plowhorses — high popularity, low margin. Ask: can I reposition them, bundle them with a puzzle, or slightly raise the price? Then look at your top three puzzles — high margin, low popularity. Move them to prime menu real estate, add a visual cue, or offer a sample or bundle. Luna: That's actionable. And it doesn't require fancy software — just a spreadsheet and a willingness to test. Lucas: We'll put a link to a free menu engineering template in the show notes, if you want a starting point. Next episode, we're going to talk about something completely different: how franchisees are using voice AI for drive-thru ordering. That's a fast-moving space. Luna: Looking forward to it. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.