Asking the right questions, is just as important as finding the proper answers
In order to find the proper answers, I wanted to understand what's the difference between product mix and market basket analysis? What are the advantages and disadvantages to those reporting methods? Is it more appropriate to use one method over the other? I sat down with a few Mirus employees to understand a little more about the two different analytical techniques.
Product Mix Analysis
Product mix is an analytical method focused on menu items over a period of time. Product mix reports are a great way to review straight forward, summarized data.
The advantages of using product mix for restaurant businesses is its concept simplicity. However, reporting summarized information can be misleading because the reports can not "see" several other factors.
Using a coffee house as an example, let's say a store wants to know What were the highest selling food items in the last quarter of the year? A product mix report can show that the top three items were the Pumpkin Spice Latte, Coffee Frappuccino, and the Flat White. Simple enough, right?
Let's take a look at another example. Maybe a steak house wants to know Which steak if any should be eliminated from their menu? A product mix report on steak sales for a quarter, shows that 60% of sales are from rib eye and 10% are from tenderloin.
From that analysis, should we assume that tenderloins are not popular and should be removed from the menu? The answer is no, we should not assume at all. We can be mislead to believe several things from a product mix because a product mix report will not include other details we need to consider before making a menu change.
For instance, assume we knew that all the rib eye steaks were ordered with coupons, thereby lowering the profit margin. Further, let's assume we know that the tenderloins were all sold without coupons, therefore having higher profit margins. Then we might draw a different conclusion on whether we should remove the tenderloin steaks off the menu.
Product Mix reporting is excellent when answering questions about menu items, but it is not sufficient by itself to make the decisions you need to make as part of menu engineering.
Market Basket Analysis
Market Basket is an analytical study of menu items on individual checks that often reveal consumer preferences. Market basket reports can give you insight into multiple dimensions because it examines check level detail.
The advantages of using market basket is the depth of detail the method considers. However, market basket usually requires in-depth thinking because management needs to specify exactly what questions they would like to research.
Using the coffee house again, let's say a regional manager would like to know, in the last quarter when people ordered the Pumpkin Spice Latte, what other items were paired with it and which pairs produced the highest profitability?
A Market Basket report would inform us that in the last quarter Pumpkin Spice Lattes were usually paired with 1. Pumpkin Bread Slice, 2. another Pumpkin Spice Latte, and 3. Double Chocolaty Chip Crème Frappuccino. Out of those top pairings, Pumpkin Bread Slice produced the largest profit margins at 67%.
How about the steak house example. Maybe we create a market basket report and find out that 74% of consumers who order a tenderloin steak À la carte, choose a bake potato as their side. In our fictitious story, let's say that your baked potato has one of the highest profit margins. Does this make the tenderloin a profitable item because customers prefer to eat it with a baked potato? I'd say so...
In the end, you need to consider what questions are you asking before thinking about which method you would like to use. Both Product Mix and Market Basket analysis have their uses, depending on the question you are asking. It's also important to understand what factors you want to consider before interpreting reports and making changes.
If you're not able to get fact-based answers to complex questions, then you are leaving money on the table.
How is your restaurant running analytical reports?
Are you still using spreadsheets to analyze heavy amounts of data?
Mirus is a multi-unit restaurant reporting software used by operations, finance, IT, and marketing.
For more information, please visit: www.mirus.com
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