Latest / Craft Brewery Financial Training Podcast / Engineering Your Menu for Maximum Profits: A Guide for Taprooms

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Engineering Your Menu for Maximum Profits: A Guide for Taprooms · Craft Brewery Financial Training Podcast

• 0:00
  Speaker 1: Today on the podcast, we have a solo episode where I'm going to talk about how to build a profitable food program.
• 0:07
  Speaker 1: So, whether you're running a full kitchen or just offering simple snacks, this is about one thing making food profitable without the guesswork.
• 0:15
  Speaker 1: So we'll share systems and strategies and best practices that you can try out, some tools that are out there to help and some business models that you can learn from and possibly emulate.
• 0:26
  Speaker 1: So how do we make money with food, how do we get better visibility into our numbers and how do we feel control, or more control, over this part of our business that often feels very out of control?
• 0:36
  Speaker 1: That's what we're going to cover today how to build a profitable food program.
• 0:40
  Speaker 1: Welcome to the Craft Brewery Financial Training Podcast, where we combine beer and numbers to provide you with tips, tactics and strategies so that you can improve financial results in your brewery.
• 0:51
  Speaker 1: I'm your host, kerry Shumway, a CPA CFO for a brewery and a former CFO for a beer distributor.
• 0:58
  Speaker 1: I've spent the last 20 years using finance to improve financial results in our beer business.
• 1:03
  Speaker 1: Now I'm helping other craft breweries to do the same.
• 1:06
  Speaker 1: Are you ready to take your brewery financial results to the next level?
• 1:10
  Speaker 1: Okay, let's get started.
• 1:12
  Speaker 1: Just a quick note.
• 1:17
  Speaker 1: We'll be right back to the podcast.
• 1:19
  Speaker 1: I want to let you know about a new network for beer industry professionals.
• 1:23
  Speaker 1: It's called the Beer Business Finance Association.
• 1:26
  Speaker 1: It's an organization of financial pros just like you, looking to improve financial results, increase profitability, connect with your peers and share best practices.
• 1:37
  Speaker 1: So I'd love to tell you a little bit more about this.
• 1:40
  Speaker 1: If you are interested in learning more, please email me, kary at beerbusinessfinancecom.
• 1:45
  Speaker 1: That's K-A-R-Y at beerbusinessfinancecom.
• 1:50
  Speaker 1: Or you can visit bbfassociationorg.
• 1:53
  Speaker 1: That's bbfassociationorg.
• 1:56
  Speaker 1: To learn more.
• 1:57
  Speaker 1: So today we're going to talk about taproom food profits, maximizing your margins with menus and metrics and, in other words, how do we make money with food and how do we get more visibility into the numbers behind our food program?
• 2:14
  Speaker 1: And then, how do we feel in control over this part of the business where very often, it feels pretty out of control.
• 2:22
  Speaker 1: So I want to talk about some systems and strategies, best practices that you can use, some tools that are out there that can help, and we'll look at business models that we can learn from and maybe even emulate.
• 2:34
  Speaker 1: So, whether you're running a full kitchen or you're offering just simple snacks, this discussion is really about one thing making food profitable without the guesswork.
• 2:46
  Speaker 1: So that's what we're going to cover today.
• 2:48
  Speaker 1: So let's dig in a little bit more on the food problem.
• 2:52
  Speaker 1: So the food problem there's a lot of technical terms that we're going to cover today, and one of those technical terms around food is that food is a pain in the butt.
• 3:01
  Speaker 1: It really is.
• 3:02
  Speaker 1: It's challenging to make money, it's very complex financially and operationally.
• 3:07
  Speaker 1: We've got lots of staffing challenges.
• 3:10
  Speaker 1: You know all the things.
• 3:10
  Speaker 1: You know all the things, but we also know that not offering food at all will cause our customers to go elsewhere.
• 3:18
  Speaker 1: So we've got to crack this code of the food problem.
• 3:22
  Speaker 1: So the solution that I will propose for you here today is to design a profitable, low-risk food program that's gonna use these three elements First is menu engineering, so that you can highlight your high margin items.
• 3:36
  Speaker 1: Next is a narrow menu strategy so you can simplify your operations.
• 3:43
  Speaker 1: And the third is to use benchmarks and key metrics so that you can measure success.
• 3:48
  Speaker 1: And we're going to talk about a lot of times with benchmarks and key metrics.
• 3:51
  Speaker 1: We're looking at, maybe, percentages and things of this nature.
• 3:54
  Speaker 1: I want to bring this term to your attention.
• 3:57
  Speaker 1: It's called contribution margin.
• 3:59
  Speaker 1: Contribution margin in dollars Basically, the difference between what you sell your food for and what the food costs Sounds obvious, but a lot of times we'll talk about percentages Like, oh, your food percentage, it needs to be under 30% or under 35%, those are fine, but percentages we don't put those in the bank, right, we put dollars in the bank.
• 4:19
  Speaker 1: So I want to talk about contribution margin and dollars, what it means, how you calculate it, about contribution margin in dollars, what it means, how you calculate it and how you can use that to really achieve the goal of creating a profitable food program without the guesswork.
• 4:30
  Speaker 1: Okay, so I want you to envision.
• 4:33
  Speaker 1: So we've got the problem.
• 4:34
  Speaker 1: You know food's a pain, it's complex.
• 4:36
  Speaker 1: We've got the solution Menu engineering, a narrow menu and benchmarks but the food vision is really imagine this your taproom is buzzing with happy guests who stay longer, spend more and keep coming back because you've created a smart, profitable food program that complements your beer, runs smoothly without headaches and adds real dollars to your bottom line.
• 5:01
  Speaker 1: So that's the goal.
• 5:02
  Speaker 1: That is the goal and hopefully that's what we'll be able to your bottom line.
• 5:04
  Speaker 1: So that's the goal.
• 5:04
  Speaker 1: That is the goal and hopefully that's what we'll be able to present here today.
• 5:09
  Speaker 1: So, for those who are not familiar with me.
• 5:11
  Speaker 1: My name is Kerry Shumway.
• 5:12
  Speaker 1: I'm a CPA, a CFO, former CFO for a brewery and a beer wholesaler, and I founded Craft Brewery Financial Training and the Beer Business Finance Association, and if you're interested in learning more about our network of beer industry professionals, we'd love to have you join us.
• 5:32
  Speaker 1: So you can just shoot me an email, kerry at beerbusinessfinancecom, k-a-r-y at beerbusinessfinancecom, and I'd be happy to jump on a call and tell you more about it.
• 5:43
  Speaker 1: So, for those of you who are watching this video, I've got a free brewery profit toolkit.
• 5:52
  Speaker 1: You can scan the QR code for those listening.
• 5:54
  Speaker 1: We will put that link in the notes so you can check that out as well, and there's just lots of spreadsheets, models, things that you can use to hopefully help you create that profitable food program.
• 6:09
  Speaker 1: All right, so why does food profitability matter?
• 6:12
  Speaker 1: As if we even have to talk about it First.
• 6:15
  Speaker 1: It's a lot of untapped potential for your business we often talk about when people come in to your brewery, to your taproom.
• 6:24
  Speaker 1: You want to give them a lot of different ways to spend money with you, and food's a great way to do that.
• 6:28
  Speaker 1: It represents that big revenue and profit opportunity.
• 6:33
  Speaker 1: The next is we want to be careful of this word, profitability because very often there's an illusion of profit.
• 6:39
  Speaker 1: So if we have food items that we're selling, great, we often tend to think that well, we must be making money on it, but sometimes we're not.
• 6:48
  Speaker 1: So sales and profit obviously not the same thing.
• 6:52
  Speaker 1: So we want to make sure we're not diluting ourselves with the illusion of profit.
• 6:56
  Speaker 1: Next, we want to do a strategic shift.
• 7:00
  Speaker 1: Maybe a mindset shift is that we want to transform food from a necessary evil into a genuine profit center for your business.
• 7:08
  Speaker 1: Because I do think a lot of times I'll be talking with tap homeowners.
• 7:12
  Speaker 1: They'll be like well, I didn't get into this for the food I didn't want to be a restaurant, I didn't want.
• 7:16
  Speaker 1: Yeah, I get it, totally understand, but we're in it.
• 7:19
  Speaker 1: So let's lean in and let's really understand what are the economics of this business and then, once we figure that out, how do we actually make money with it, so that it's truly a profit center and not just something that was kind of forced upon us.
• 7:35
  Speaker 1: What I'm seeing maybe you're seeing this too in your own business is the taproom sales mix trending from beer to food.
• 7:43
  Speaker 1: In other words, if you started out beer only and then maybe you got brought in some food and the mix tends to shift.
• 7:51
  Speaker 1: So maybe in year one you were selling 70% beer, 30% food.
• 7:56
  Speaker 1: If you looked at your total sales mix, maybe year two it was like 60, 40 or 55, 45 beer to food, and maybe now it's more like 50-50 or 45-55.
• 8:07
  Speaker 1: So that seems to be pretty common is that food tends to start to overtake the total sales mix.
• 8:14
  Speaker 1: Nothing wrong with that it can be a good thing.
• 8:16
  Speaker 1: But not all sales are created equal.
• 8:19
  Speaker 1: We know those food margins are generally quite a bit lower.
• 8:22
  Speaker 1: So I bring this up only as a cautionary tale.
• 8:25
  Speaker 1: That you've got food, it's likely going to continue to be a larger percentage of your sales mix Really just puts a greater emphasis on the need for us to understand the margins so that we can create that profitable food program.
• 9:10
  Speaker 1: All right, I want to share with you over the course of this talk here three financial best practices and then three operational best practices.
• 9:18
  Speaker 1: As I mentioned at the top, you know the food problem is that it's very complex.
• 9:22
  Speaker 1: It's financially complex, operationally complex.
• 9:25
  Speaker 1: So let's talk about three financial best practices to untangle that a little bit.
• 9:30
  Speaker 1: So the first is we really need to separate our food operations and the financials, so that you can run an income statement directly on just food.
• 9:41
  Speaker 1: Forget about beer and all the other things.
• 9:42
  Speaker 1: Are we making any money on food?
• 9:43
  Speaker 1: Got to set up our numbers so that we can run it.
• 9:44
  Speaker 1: That's one.
• 9:45
  Speaker 1: Two, using benchmarks and targets to measure success.
• 9:49
  Speaker 1: And three is to use a tracker, a food cost and margin tracker, and I'll go through each of these and kind of go into these in more detail here for you.
• 10:01
  Speaker 1: All right, so separating food in your operations.
• 10:04
  Speaker 1: Really, what that means is, when you run an income statement, typically what you're seeing is sales and cost of goods and margins, operating expenses and some kind of profit or loss at the bottom, and that's usually listing out all the things you sell and the kind of profit or loss at the bottom, and that's usually listing out all the things you sell and the cost of all the things you sell.
• 10:19
  Speaker 1: But what we want to do is to be able to run the numbers so that I can see, so that you can see just the operations from food, just food sales, just food cost of goods sold, just food margins and expenses related to that part of the operation.
• 10:36
  Speaker 1: Now we often say in QuickBooks this is done using classes, so you can have a food class.
• 10:42
  Speaker 1: You could have a beer class.
• 10:45
  Speaker 1: Typically it would be maybe taproom food, taproom, non-food, wholesale distribution, if you're into that, and there may be a category that's other, general administrative, some sort of non-classified doesn't fit neatly into food or distribution or other.
• 11:01
  Speaker 1: But really what that's going to do is it's going to show you, first and foremost, you know what are your sales trends, what are your margin trends?
• 11:08
  Speaker 1: Are we actually profitable in each of these?
• 11:10
  Speaker 1: And once you run this, you'll get a much better understanding of where in your business you're actually making money or losing money.
• 11:17
  Speaker 1: So this is really financial best practice.
• 11:21
  Speaker 1: Step number one is you got to track financials by business line, set up your numbers so you can see where you're really making money and specifically on food.
• 11:30
  Speaker 1: Next are benchmarks and key metrics.
• 11:31
  Speaker 1: We love them.
• 11:32
  Speaker 1: We love the key metrics.
• 11:34
  Speaker 1: So when we're talking about food, we're talking about prime costs.
• 11:37
  Speaker 1: Prime costs are the cost of the food and the cost of the labor associated with preparing that food.
• 11:42
  Speaker 1: When we talk about prime cost percentage, that is the aggregate of those prime costs, food cost and food labor divided by your total food sales.
• 11:53
  Speaker 1: So what is that percentage.
• 11:58
  Speaker 1: These percentages are all over the place, but if you look typically, what are your targets?
• 12:01
  Speaker 1: Food is around 30, labor is around 30.
• 12:03
  Speaker 1: So there's ranges.
• 12:04
  Speaker 1: Sure, food might range from 25% to 35%.
• 12:09
  Speaker 1: The cost is a percentage of the sales.
• 12:11
  Speaker 1: Labor might be around 25% to 30%.
• 12:14
  Speaker 1: Cost of labor as a percentage of the sales.
• 12:14
  Speaker 1: Labor might be around 25 to 30%.
• 12:16
  Speaker 1: Cost as a labor.
• 12:16
  Speaker 1: Cost of labor as a percentage of sales.
• 12:18
  Speaker 1: These are the direct costs related to your food business.
• 12:21
  Speaker 1: So, to pick a number, we try to get food and labor costs around 60% or less.
• 12:28
  Speaker 1: Now big asterisk next to this one, it's like it doesn't really matter.
• 12:34
  Speaker 1: I mean, this is fine, these are industry averages.
• 12:35
  Speaker 1: But what you need to understand is what percentage do you need to actually be profitable in your food business?
• 12:42
  Speaker 1: You might need it to be around 50% or even more.
• 12:45
  Speaker 1: So we need to understand your individual circumstance and use these benchmarks as really more interesting directional rules of thumb, but much more important, to see what your actual numbers are.
• 12:59
  Speaker 1: To see what your actual numbers are, we talk about other key food program metrics.
• 13:05
  Speaker 1: We might be looking at the waste and spoilage rate.
• 13:10
  Speaker 1: We might be looking at average guest spend.
• 13:12
  Speaker 1: You know how much food revenue is coming in.
• 13:14
  Speaker 1: We'd be looking at gross margin by item or labor cost ratio, food costs, all the things.
• 13:20
  Speaker 1: So I'd say, pick a handful of them and then create a food cost margin tracker.
• 13:25
  Speaker 1: Now I really like these because these are your numbers and you can see the trends on the numbers, see how you're doing.
• 13:31
  Speaker 1: Kind of, over time you can set goals and obviously track towards those goals.
• 13:35
  Speaker 1: So in this example, if we're looking at food costs as a percentage of sales, I want to know what that looks like from January, february, march, april.
• 13:44
  Speaker 1: I want to know what that looks like from January, february, march, april.
• 13:45
  Speaker 1: I want to look at it from this January versus the prior January.
• 13:48
  Speaker 1: I want to look at maybe quarter to date, year to date.
• 13:50
  Speaker 1: I want to see what's going on.
• 13:52
  Speaker 1: Are these percentages getting better?
• 13:54
  Speaker 1: Are they getting worse?
• 13:55
  Speaker 1: And again, I would caution that even if our food cost percentage tends to be getting higher let's say we were at 27% and now we've gone up to 30% it isn't necessarily a bad thing.
• 14:08
  Speaker 1: It really just says all right, what's going on?
• 14:09
  Speaker 1: Why is food?
• 14:10
  Speaker 1: Because, again, what we're looking, what we're focused on, is what are the total contribution margin dollars that we're going to get.
• 14:18
  Speaker 1: So, even if that food cost is a percentage is higher, am I ending up at the end of the day with more dollars, yes or no?
• 14:26
  Speaker 1: So that's really the key.
• 14:27
  Speaker 1: But these trackers can help you at least identify things that are maybe trending in the wrong direction.
• 14:34
  Speaker 1: Or maybe trending in the wrong direction Labor costs same idea.
• 14:38
  Speaker 1: You want to track what are your total labor costs compared to sales and what does that look like over time?
• 14:43
  Speaker 1: So maybe it's at 24%, then it jumps up to 26%, now it's at 30%.
• 14:48
  Speaker 1: Wow, okay, I've got to look at this.
• 14:49
  Speaker 1: So if you have these trends, you can really kind of dig in and spot again potential problems before they go on too long.
• 14:56
  Speaker 1: So those are three best practices that you can think about.
• 15:00
  Speaker 1: And then again, just to recap them, you're going to separate your food operations and your financials.
• 15:05
  Speaker 1: You want to use these benchmarks and targets and you can create these trackers.
• 15:09
  Speaker 1: Now, the example I've given you was a food cost and margin tracker, but you can use these trackers for anything you know average revenue per guest, how many total customers are coming in in a given week or month, and again tracking to see what those numbers look like over time.
• 15:28
  Speaker 1: So those are three financial strategies.
• 15:31
  Speaker 1: So let's now talk about three operational strategies to help you create a profitable food program.
• 15:37
  Speaker 1: So three strategies First is a narrow menu, second is a platform strategy and third is menu engineering.
• 15:45
  Speaker 1: So what are these things?
• 15:45
  Speaker 1: A narrow menu is going to help us focus on operational efficiency.
• 15:50
  Speaker 1: So, really, what a narrow menu means is we're going to have a limited number of ingredients.
• 15:55
  Speaker 1: It's going to simplify our back house operations and we're going to cross utilize all those ingredients to create a lot of different menu options for our customers, because our customers want a lot of options but we want operational efficiency in our kitchen.
• 16:11
  Speaker 1: So a narrow menu can help us achieve that.
• 16:14
  Speaker 1: Platform strategy is this idea of creating a menu, a lot of variety in your menu, using that common base or platform, those limited number of ingredients.
• 16:25
  Speaker 1: So, again, we can give those options without creating all that complexity.
• 16:29
  Speaker 1: And then, thirdly, menu engineering.
• 16:32
  Speaker 1: That's what we want to direct our customers to, what they're going to enjoy the most and what's going to provide the highest margin for our business.
• 16:40
  Speaker 1: So, narrow menu, platform strategy, strategy, menu engineering some examples, and you know I'll describe these and for some folks listening, like, well, it's pretty obvious.
• 16:51
  Speaker 1: For others maybe a light goes on, like for me.
• 16:54
  Speaker 1: I mean, it was.
• 16:54
  Speaker 1: I'm not sure I put all these things together, but you know, having thought about them and then looked at different examples and talked to different people, it's like this kind of makes a lot of sense.
• 17:04
  Speaker 1: So one example of a narrow menu and a platform strategy would be our old friend, the in and out burger.
• 17:10
  Speaker 1: If anyone's ever been there, it's delicious and amazing and it's very simple.
• 17:13
  Speaker 1: You know it's burgers and fries, shakes, soft drinks your typical burger place.
• 17:17
  Speaker 1: And they have an operational focus with very streamlined kitchen minimal inventory, fast execution.
• 17:22
  Speaker 1: Focus with very streamlined kitchen, minimal inventory, fast execution.
• 17:25
  Speaker 1: But there's variety in there too.
• 17:26
  Speaker 1: They've got these menu variations of animal style fries or protein style, kind of cool, interesting.
• 17:31
  Speaker 1: So again, straightforward.
• 17:33
  Speaker 1: But it uses that strategy of a limited number of ingredients to create a wide variety of menu options.
• 17:40
  Speaker 1: The next one is chipotle.
• 17:42
  Speaker 1: So a core set of a minimum number of ingredients.
• 17:46
  Speaker 1: Those ingredients create dozens of combinations, good inventory control because of the fewer ingredients, better food and cost control, quality assurance.
• 17:55
  Speaker 1: Then there's sweet green.
• 17:58
  Speaker 1: We've got a healthy offering here salads and grain bowls.
• 18:00
  Speaker 1: I do love grain bowls.
• 18:01
  Speaker 1: So you can choose your base, your protein, your dressing, again, ingredients reused across seasonal and staple menu items.
• 18:12
  Speaker 1: So, again, narrow menu, platform strategy and once you sort of click with that, like almost every restaurant you go to, that's you know, employ, employing this.
• 18:23
  Speaker 1: You'll see this kind of everywhere and you know I'm not putting these examples out there to make you become an In-N-Out burger by any means, but it's.
• 18:30
  Speaker 1: How could you take your food strategy and use a narrow menu and a platform strategy to help again get those efficiencies in the back of house?
• 18:44
  Speaker 1: All right, so let us talk about that.
• 18:48
  Speaker 1: I love these matrix, these little grids that can help you make decisions and classify things.
• 18:56
  Speaker 1: So this one's the profit-focused menu strategy, and this is really looking at these terms called stars, dogs, plowhorses and puzzles.
• 19:04
  Speaker 1: So these are essentially going through your menu items and figuring out which are your best sellers with the best margins and which are the opposites.
• 19:13
  Speaker 1: You know stuff that doesn't sell and the margins stink.
• 19:16
  Speaker 1: So they've got names for these.
• 19:17
  Speaker 1: The first, the stars.
• 19:19
  Speaker 1: Those are your high margin items that are also very popular and sell very well.
• 19:24
  Speaker 1: The next are your dogs.
• 19:26
  Speaker 1: These are your low profit Margins, aren't very good, they don't sell very well.
• 19:31
  Speaker 1: Then there's your plow horses Maybe low profit, but people love them, sell like crazy.
• 19:37
  Speaker 1: And your puzzles these have great margins but they don't sell very well.
• 19:42
  Speaker 1: Puzzles these have great margins but they don't sell very well.
• 19:45
  Speaker 1: So the idea behind this and categorizing it is so that you know you can make decisions based on what menu items fall into what category.
• 19:49
  Speaker 1: So stars again, these are your high margin, high popular.
• 19:54
  Speaker 1: We want to promote the heck out of these.
• 19:56
  Speaker 1: So we're leaning towards this third concept of menu engineering.
• 20:00
  Speaker 1: We want to promote, we want to direct our customers towards these menu items that have the best margins for us but the customers are going to absolutely love and those are our stars.
• 20:11
  Speaker 1: So, again, it may sound obvious on the surface, but what are we doing to promote?
• 20:16
  Speaker 1: And what does that even mean?
• 20:17
  Speaker 1: I think it's.
• 20:18
  Speaker 1: How do we call these out on the menu?
• 20:20
  Speaker 1: How do we put them up?
• 20:21
  Speaker 1: If you've got a TV, how do you show up a picture of that delicious burger or grain bowl or whatever you may be offering that amazing pizza, because I want to buy that, you know, but you got to direct me there.
• 20:33
  Speaker 1: Those are the stars.
• 20:35
  Speaker 1: Plow horses these are the ones that low margin, so not so good, but people are buying them like crazy.
• 20:40
  Speaker 1: Well, what do we do about these?
• 20:41
  Speaker 1: They're very popular.
• 20:42
  Speaker 1: I don't want to not offer my customers things that I know sell very well.
• 20:47
  Speaker 1: But I got to figure out my goal is to create a profitable food program and these are low profit.
• 20:52
  Speaker 1: So what can I do?
• 20:53
  Speaker 1: I got to either increase the price or reduce the cost.
• 20:56
  Speaker 1: But at least now I know all right, well, that's a plow horse.
• 21:00
  Speaker 1: I got to increase the price, or we've got to reduce the cost.
• 21:02
  Speaker 1: So we know what to do.
• 21:04
  Speaker 1: Next are the dogs.
• 21:05
  Speaker 1: So these are the ones that really don't sell very well and even if they did, the margins stink.
• 21:11
  Speaker 1: So what do we do with these?
• 21:12
  Speaker 1: We've got to get rid of them.
• 21:13
  Speaker 1: Get them out of there.
• 21:13
  Speaker 1: They're dogs.
• 21:16
  Speaker 1: Lastly, are the puzzles.
• 21:17
  Speaker 1: So these are the ones with really good margins but just aren't selling.
• 21:20
  Speaker 1: So what do we do about these?
• 21:21
  Speaker 1: Reposition, redesign, direct customers to them.
• 21:25
  Speaker 1: So you kind of get the idea.
• 21:26
  Speaker 1: If it's something we know the customer is going to love and we know our P&L is going to love because the margins are good, that's where we really need to direct our customers.
• 21:35
  Speaker 1: So menu engineering it's aligning the design with the profit drivers, using the psychology of layout and pricing, got to show people, got to tell people, got to use suggestive selling.
• 21:48
  Speaker 1: So it can be on the menu, sure, and it can also be things that we train our staff hey, let's suggest something that our customers are going to love.
• 21:57
  Speaker 1: So I really really like that.
• 21:59
  Speaker 1: Again, a lot of this is pretty straightforward and common sense, but I don't see it a lot, so hopefully there'll be something here that's of use for you folks listening.
• 22:10
  Speaker 1: So just to reemphasize, profit and revenue are not the same thing, right?
• 22:14
  Speaker 1: So just because something's selling like crazy doesn't necessarily mean we're making any money on it.
• 22:20
  Speaker 1: So what do we do?
• 22:20
  Speaker 1: We got to understand, by menu item, where we're actually making those contribution margin dollars.
• 22:30
  Speaker 1: So we got to track the margin per plate, not just kind of gross margin on a macro level.
• 22:36
  Speaker 1: It's good to have it on your P&L so you can see what are my food costs as a percentage, what are my food margins.
• 22:42
  Speaker 1: That's important.
• 22:42
  Speaker 1: But we really need to know what is the contribution margin per plate so that we can really understand where we're making that money.
• 22:50
  Speaker 1: And then, furthermore, we want to dig in on these fixed and variable costs, because costs are changing all the time.
• 22:55
  Speaker 1: So essential for profitability planning is getting our hands around where we actually making money on our specific menu items.
• 23:06
  Speaker 1: Now it's interesting is the same concept you can apply to your beer lineup to.
• 23:10
  Speaker 1: You know, there are probably beers that you've got that just are far less profitable than others, but you might not know which ones they are.
• 23:17
  Speaker 1: So costing them out, looking at the price, looking at the margin, doing the margin percentage and the margin, doing the margin percentage and the margin dollars by item, identifying again your stars, your dogs, your plow horses and your puzzles, and then directing your customers towards those items that you know they're gonna love and then are gonna have the highest margin.
• 23:36
  Speaker 1: So here's a cool little spreadsheet.
• 23:40
  Speaker 1: Full credit here to Mark Meckler of Crafting Strategy.
• 23:43
  Speaker 1: He had introduced us to this concept and I really like it.
• 23:48
  Speaker 1: So what we've got here is a menu engineering, menu mix.
• 23:53
  Speaker 1: So it's basically like what do you sell?
• 23:55
  Speaker 1: How many of each items on your menu do you sell, what is the individual food cost and price of each, and then what are the contribution margins for each one?
• 24:06
  Speaker 1: So going through your menu and listing those things out can yield some really interesting results.
• 24:13
  Speaker 1: Now the name of the game is how do we increase the average contribution margin?
• 24:18
  Speaker 1: In other words, how do we get more dollars, more margin dollars, in so that we can create that profitable food program?
• 24:27
  Speaker 1: So when you run this exercise, you'll come up with your total food cost for your menu and then your food cost as a percentage of sales.
• 24:38
  Speaker 1: But, more importantly, you're going to come up with the average contribution margin per menu item.
• 24:44
  Speaker 1: So you might do the math on this and say all right, well, I've sold 1,700 items.
• 24:51
  Speaker 1: I've got about $6,000 of total contribution margin.
• 24:56
  Speaker 1: I do the math on that.
• 24:57
  Speaker 1: It's about $3.50 per item is generally what I make in terms of dollars.
• 25:03
  Speaker 1: So that's a number that we need to know and understand so that we can increase it.
• 25:08
  Speaker 1: And when we increase it, we're giving ourselves a better chance at creating that profitable food program.
• 25:15
  Speaker 1: So we'll have these for you for download.
• 25:17
  Speaker 1: You can download them, plug in your own numbers, see what it works out to.
• 25:22
  Speaker 1: And then it's really about setting a goal how do I increase my average contribution margin for my food items?
• 25:27
  Speaker 1: So if you go through that exercise, what you might find is yeah, there are there's certain menu items that we just don't make nearly as much as we do on others.
• 25:37
  Speaker 1: So, again, using that concept of menu engineering, directing customers towards those items you know they're going to love and they're going to have the higher margins, you can in fact move that average contribution margin up, move those contribution margin in dollars in total up and therefore help achieve your goal of creating that profitable food program.
• 26:00
  Speaker 1: So try that out.
• 26:01
  Speaker 1: You know, I think that's super duper important to uh, to really understand, um, the menu mix where you're making that contribution margin and where you can make more.
• 26:13
  Speaker 1: So, understanding true food costs, again, we've got to calculate costs by plate, by individual menu item.
• 26:24
  Speaker 1: We want to look at those item level.
• 26:27
  Speaker 1: Take an item level focus, item level.
• 26:35
  Speaker 1: Take an item level focus and use that profit matrix stars, dogs, puzzles and plow horses, promote the stars, dump the dogs, and it's going to have a really significant impact on the profitability of your food program.
• 26:44
  Speaker 1: I said at the top, you know we want to create a profitable food program, but eliminate the guesswork, eliminate the uncertainty, and this is how you do it.
• 26:51
  Speaker 1: Menu engineering is how you do it, understanding the individual economics of everything on your menu.
• 26:58
  Speaker 1: So sure, we've talked about a target food cost, we've talked about a target labor cost, but integral to creating that profitable food program is to really find your optimal percentage range for sustainable profitability.
• 27:14
  Speaker 1: What do you need?
• 27:15
  Speaker 1: What does your business need?
• 27:16
  Speaker 1: Every business has got its own unique set of economics and costs and whatnot.
• 27:20
  Speaker 1: So really getting in there and understanding that.
• 27:23
  Speaker 1: Now there's this other cool term called design to cost, and really what that means is you don't always get to set the price of your menu items because people tend to think like, well, I don't know, a pizza should cost X, so you can't go out and charge 2X for your pizza.
• 27:39
  Speaker 1: You could try, but it probably isn't going to work.
• 27:41
  Speaker 1: So that creates a little bit of simplicity and a challenge for you.
• 27:46
  Speaker 1: So if you know your pizza's got to be somewhere around X and you need a margin of Y, then you've got to force the cost of this menu item to be Z.
• 27:57
  Speaker 1: You've got to go in and work backwards.
• 27:58
  Speaker 1: So that's design to cost, meaning the price is what the market said.
• 28:03
  Speaker 1: I need this to be a margin.
• 28:05
  Speaker 1: So the only difference is going to be what is this thing going to cost?
• 28:08
  Speaker 1: I've got to design the cost so that I achieve these outcomes Market price and the margin that I need.
• 28:14
  Speaker 1: So I think that's kind of a cool concept is to think about it and that can create a nice little challenge for people Like all right, how could we make this pizza for this particular cost?
• 28:25
  Speaker 1: What would we do?
• 28:25
  Speaker 1: How would we go about that?
• 28:27
  Speaker 1: Because I think a lot of times it's like it's setting a goal, it's setting a target and then it's getting after it, putting on the old thinking cap and figuring it out All right.
• 28:43
  Speaker 1: So let's talk about some tools that you can look at to eliminate a lot of the manual stuff, because a lot of what I've discussed is really these are strategies, these are best practices.
• 28:48
  Speaker 1: Here are some trackers you can use.
• 28:51
  Speaker 1: You know, here are some ways to do those calculations and that's all fine and you know, essentially free, it's just your time and energy.
• 28:58
  Speaker 1: But there are tools, and one in particular I'll focus on here is called MarginEdge, and this is a comprehensive inventory and recipe costing platform for restaurants and, obviously, those taprooms that have food programs.
• 29:10
  Speaker 1: So it does a lot of very cool stuff, not the least of which is real-time food and beverage cost tracking.
• 29:20
  Speaker 1: So we're focusing on food, but MarginEdge can also do your beverage tracking, for costs as well and margins, so you can see what you're spending and how it's trending and you can respond before those margins start to shrink on you Because, again, these costs change all the time and it's really hard to keep on top of it.
• 29:36
  Speaker 1: They also offer what I think is super-duper cool it's a daily controllable P&L.
• 29:41
  Speaker 1: I love those words in that combination.
• 29:44
  Speaker 1: So, looking at your sales data vendor invoices, cost of goods you really know where you stand from a profitability standpoint every day, because when we run our financials, you know we tend not to get the financials until you know two weeks after the end of the month.
• 30:00
  Speaker 1: It's kind of too late to do anything.
• 30:01
  Speaker 1: This will show you it right as it's happening.
• 30:05
  Speaker 1: Menu and recipe analysis is another one.
• 30:07
  Speaker 1: You know this is essentially menu engineering, like what menu items do we make good dollars on and which do we not?
• 30:13
  Speaker 1: So you remember dogs, stars, puzzles, plow horses.
• 30:17
  Speaker 1: This will do it automatically for you.
• 30:19
  Speaker 1: Hey, these are my stars.
• 30:20
  Speaker 1: Let's direct customers to purchase these items because we know they're going to love them and we know we're going to make good margins on them.
• 30:28
  Speaker 1: Price alerts so we get notified if cost of ingredients spike, which very often they do, so that we can adjust before it kills our margins.
• 30:38
  Speaker 1: Then there's back office efficiency and integration with all your different systems.
• 30:44
  Speaker 1: So some very cool things there to check out.
• 30:48
  Speaker 1: All right, as I wrap this up, I want to give you an action plan so that you can create a profitable food program and eliminate the guesswork.
• 30:55
  Speaker 1: Number one step number one, should you choose to accept this plan is to audit your current menu.
• 31:02
  Speaker 1: So what does that mean?
• 31:03
  Speaker 1: Analyze the profitability of every menu item that you currently offer.
• 31:07
  Speaker 1: That's what it is.
• 31:08
  Speaker 1: Understand what's on your menu, what does it cost?
• 31:12
  Speaker 1: What are you pricing it for?
• 31:13
  Speaker 1: What's your contribution margin?
• 31:14
  Speaker 1: Next, number two identify those margin drainers.
• 31:19
  Speaker 1: You've got some puzzles and you've got some dogs that are hurting your profitability.
• 31:22
  Speaker 1: They're hurting our goal.
• 31:26
  Speaker 1: Our goal is to create a profitable food program, but those dogs are not going to allow us to do it.
• 31:30
  Speaker 1: You've got to find out which ones they are and get rid of them.
• 31:33
  Speaker 1: Number three you've got to reprice or remove, so you get rid of the dogs.
• 31:38
  Speaker 1: Well, there's some other ones in there, those puzzles that you might need to reprice.
• 31:42
  Speaker 1: So you've got to adjust pricing, fix costs or, again, maybe you just have to eliminate them entirely.
• 31:47
  Speaker 1: Number four track costs regularly.
• 31:50
  Speaker 1: We got to look at these costs on a regular basis, at least weekly, so that nothing gets away from us.
• 31:54
  Speaker 1: And number five, we want to share it with the team, communicating these key metrics and goals with our entire staff.
• 32:00
  Speaker 1: So that is your action plan, should you choose to accept it.
• 32:05
  Speaker 1: And if you only remember one thing from this talk is that your taproom can achieve profits and guest satisfaction by offering a simple, low-risk food option, using platform strategy, menu engineering and a relentless focus on contribution margin.
• 32:23
  Speaker 1: That's the thing.
• 32:23
  Speaker 1: It's a relentless focus on contribution margin so you can build that smart, sustainable and profitable program.
• 32:31
  Speaker 1: All right, I will leave it there for now.
• 32:33
  Speaker 1: We'd love to hear from you If you have any questions on this.
• 32:36
  Speaker 1: I'm cary at beerbusinessfinancecom.
• 32:38
  Speaker 1: K-a-r-y at beerbusinessfinancecom, I'd love to have you join our network of brewery owners from across the land.
• 32:46
  Speaker 1: We have about 20 online on-demand courses for you that are available with your membership.
• 32:53
  Speaker 1: It's basically a library that you or anyone in your brewery can access.
• 32:57
  Speaker 1: Financial training courses on all sorts of topics.
• 33:01
  Speaker 1: Every month, we do our financial roundtable meeting, where we come together and we share ideas and best practices.
• 33:08
  Speaker 1: As I lead those meetings, we talk about specific topics so that we can run a more profitable, cashflow-positive business.
• 33:16
  Speaker 1: And again, if you'd like the free Brewery Profit Toolkit if you're watching, you can scan this QR code.
• 33:22
  Speaker 1: If you're listening, check the link in the show notes to get that free Brewery Profit Toolkit and if you decide to download it and check it out, I hope you find it profitable.
• 33:32
  Speaker 1: Thank you for listening to the craft brewery financial training podcast, where we combine beer and numbers so that you can improve financial results in your brewery.
• 33:42
  Speaker 1: For more resources, tools, guides and online courses, visit craftbreweryfinancialtrainingcom.
• 33:49
  Speaker 1: And don't forget to sign up for the world famous Craft Brewery Financial Training Newsletter.
• 33:54
  Speaker 1: Until next time, get out there and improve financial results in your brewery today.