Is Your Menu Profitable? A Guide for Bar and Restaurant Owners

Restaurants are tough businesses—profits are small, risks are high, and many places are fighting to stay afloat. 

Your menu can be a key tool in generating profits and customer traffic. This guide breaks down how to make your menu more profitable.

The State of Restaurant Profitability

Before COVID, restaurants made around 5% profit. Now, it’s down to just 1-3%. Even high-performing restaurants saw cash flow drop by 20% when profits fell from 15% to 12%.

Defining Profitability

Profitability = Revenue - Costs.

Simple. But lasting profits? That takes long-term thinking.

Short-term strategies like cutting product quality or drastically increasing prices often backfire, as seen with chains like Pizza Hut and Starbucks.

Aspects of Menu Profitability

We'll cover both macro and micro aspects of profitability.

Macro Aspects:

1. The Big Picture: Cohesion of the menu with the theme
2. Business Design: Marketability of the menu
3. The depth (or the composition) of the menu

Micro Aspects (Menu item level):

1. The value to the guest
2. Back of house (BOH) considerations:
   1. Production cost and corresponding profit
   2. Ability to produce menu items consistently and profitably

Each of these aspects affect each other rather than being its silo.

Macro Aspects of Menu Profitability

1. The Big Picture: Theme and Menu Alignment

Your menu should match your restaurant’s theme. Take Shake Shack, for example. They define the company as: "Shake Shack is a modern-day 'roadside' burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, and wine."

It’s straightforward and it works.

Do you remember McDonald’s used to sell salads? In 2020, they removed salads from their menu to refocus and simplify, realizing customers wanted great fries, hot sandwiches, and $5 value meals, not salads.

Action steps:

1. Write down the theme of the restaurant using Shake Shack as a template.
2. Review the menu and assess whether all menu items serve this theme.
3. Change the menu as necessary to promote the theme.

2. Business Design: Marketability of the Menu:

Great hospitality transports guests to another place and time. They leave with memories.

Building authority within a certain category can often result in fetching a higher premium. It is often a good strategy, not diluting the brand by expanding the menu beyond the confines of the theme.

Actions to improve marketability:

• Craft the story you want your restaurant to tell.
• Evaluate whether your menu and service effectively convey this story.

3. Menu Rotation:

Building on core principles, rotating your menu is key to keeping it fresh and aligned with your theme. Seasonal items and specials are great ways to attract returning customers without over-complicating your offerings.

One restaurant found itself stuck with $2M in liquor inventory—impressive, but it didn’t match their concept. Worse, it tied up cash in slow-moving stock. This highlights the importance of keeping your menu aligned with your concept and avoiding unnecessary expansion. Adding new items without careful consideration can hurt your business.

Micro Aspects of Menu Profitability

Providing Exceptional Value to the Guests

Value is key. It’s about what you offer, how guests perceive it, and the price.

Changing Economy:

The pandemic led to $2.1 trillion in extra savings. People spent these savings and then another $371 billion after restrictions eased. A large part of this spending went to restaurants. Consumers were eager to dine out again. The restaurant industry boomed as a result. But 2024 shows a consistent drop in the same-store sales. The era of easy spending in restaurants seems to be over.

Pandemic-era excess savings

Many restaurants raised their prices as costs went up. Their overall revenues then started to decrease. This happened to McDonald's too.

Here is where McDonald’s stands in Q2 2024 per their earnings release:

Global same-store sales fell by 1%. This was below expectations. It's the first quarterly decline since late 2020. The CEO said consumers are spending carefully. They’re now focusing on offering reliable everyday value.

How can we provide more value to the guests?

Going back to the three components of value:

1. The offering:
   1. Can you offer more for the same price or a better offering for a slightly higher price?
2. The perception of the offering
   1. A gourmet burger restaurant that we worked with was suffering from this exact topic. They are premium compared to most of their competitors, so their prices are higher. The owner told his story well. The brand aligned with its premium pricing, and customers paid for it.
3. Menu Price
   1. Chili’s is a brand I enjoy a lot, and they have been offering great value. Their new “3 For Me for $10.99” deal with their Smasher Burger is a jab at McDonald’s becoming unaffordable. Chili’s same-store revenues increased by 15% in 2024, and part of the reason is their excellent value-oriented promotions.

Falling sales forced McDonald’s to bring back the $5 value meal.

More pricing strategies to consider:

• Price Anchoring or Decoy Pricing: Add high-priced premium items to each category to guide the guests to order the special or make the remaining items more reasonably priced.
• Charm Pricing / Odd-Even Pricing: Use prices ending in odd numbers (e.g., $9.99 instead of $10).
• Bundling: Package items to create value for the consumer and drive higher spending per guest.

Back of House Considerations 

a. Production cost and profit:

Most restaurants use cost at the heart of their pricing. They target a cost ratio. When costs went up in recent years, restaurants followed suit. A sound strategy is to seek cost savings whenever possible.

Group Purchasing Organizations (GPOs) can save your restaurant 10-15%. These savings can be used to give guests more value—lower prices, better quality, or bigger portions.

Cut menu items that use rare or perishable ingredients, especially if they don’t sell well. Using ingredients across multiple dishes is a smart way to reduce waste and streamline operations.

One of the successes of McDonald’s in the last few years has been with celebrity collaborations. Unlike the earlier periods, most new celebrity menu items use the same ingredients as the regular menu items.

b. Ability to produce menu items consistently and profitably:

Restaurants are still short-staffed. The best practices are as follows:

• Match the skillset and availability of staff with the menu to ensure excellent, consistent delivery.
• Consider the labor needed to produce complex dishes.
• Ensure staff availability for core operations.
• Minimize waste and inconsistent execution.

Can your kitchen execute the menu smoothly 100% of the time? If not, simplify it.

A company that didn’t follow these practices in recent years is Starbucks.

Starbucks’ new CEO Brian Niccol said that menus can feel overwhelming, the product is inconsistent, and the wait is too long.

Conclusion

A profitable menu is all about balance.

• Align the menu with the theme
• Innovate
• Add value
• Keep back-of-house efficient.
• Keep the menu simple enough for your staff to execute perfectly.

By following these strategies, you can turn your menu into a profit driver. Even in tough times, your restaurant can thrive.

Are you registered for our Crave and Crave on the Menu newsletters? Sign up today!

Plan to Attend or Participate in Our Events:

• 2024 Bar & Restaurant Expo Texas, October 28-30, 2024 in San Antonio, TX. Register today!
• 2025 Bar & Restaurant Expo, March 24-26, 2025, Las Vegas, Nevada

To learn about the latest trends, issues and hot topics, and to experience and taste the best products within the bar, restaurant and hospitality industry, plan to attend Bar & Restaurant Expo 2025 in Las Vegas. Visit BarandRestaurantExpo.com.

To book your sponsorship or exhibit space at our events, fill out our form.