How to Boost Your Cannabis Business' Profits with Menu Engineering

Are you leaving money on the table? Every shift in season brings with it a host of new and innovative products. It's the perfect time to reassess your product assortment and identify any gaps you may have. In this blog post, we'll explore how you can raise profits through menu engineering and segmentation, a proven system backed by research and decades of industry use.

What is Menu Engineering

Menu engineering uses data and psychology to evaluate the profitability and popularity of menu items. This evaluation helps determine which products to feature and where to place them. When applied correctly, it has been shown to increase profits 10-15%.

Rootesdfd in research, the Boston Consulting Group developed this concept in 1970 with the goal of making it easier to analyze and make decisions about products. 10 years later it was introduced to the restaurant industry by Professor Donald Smith of Michigan State University. Since then, it has been helping businesses make the most out of their menus.

By using methodical analysis, menu engineering steers clear of random decisions and guesswork which alleviates stress and worry. The best part about successful menu engineering is that it does not depend on the type or size of your business. Rather, it depends on your knowledge of the menu and your willingness to put in the time and effort needed to understand the process and make changes.

If you sell items that have varying levels of profitability and popularity, menu engineering can be helpful.

How to Start Menu Engineering to Increase Profits

Before you start slashing prices or making drastic changes to your product offerings, consider some sage advice from prominent menu engineer Gregg Rapp.

Gregg suggests that we need to not only monitor sales volume, but product profitability as well. We call this menu segmentation.

Step 1. Determine true product costs

Map out product costs and include any hidden expenses such as labour, merchandising, etc. You want a clear picture of how much exactly it costs to sell these products. Plan to take your time, once you have the swing of it you will be more efficient as you learn the true costs.

Step 2. Categories your menu

By starting with categories, we won't be eliminating a whole section of your menu that you may not want to remove completely. Categories refer to product categories, such as flowers or edibles.

You can proceed to step three at this point, but if you want a more detailed view, you can create sections within your categories. However, it is unlikely that you have this level of inventory diversity, or if you do, you may only have a few items that will not support the overall goal of this exercise.

If you choose to create sections, they should refer to subcategories. For example, under Edibles, you may have Chocolate and Chews or Candy.

Step 3. Determine menu item popularity and profitability

Here’s where the magic happens - Examine each menu item during a recent period (30-45 days) and place them into one of these quadrants:

• Stars - high profitability/high velocity
• Work Horses- low profitability/high velocity
• Walkers - high profitability/low velocity
• Lingerers - low profitability/low velocity

Then gut check this to perceived popularity, or an ability for it to change from one category to another.

Step 4. Determine your products’ fates

• Stars - these products are probably selling themselves, your menu should highlight these.
• Work Horses - can you do anything to improve the profitability? Even just a little?
• Walkers - Talk to customers/buyers/budtenders to see why these aren’t moving- would they benefit from being featured more?
• Lingerers- Slow-moving SKUs - Rip off the band-aid. Get them out.

Menu engineering, controlling costs, and protecting profitability remains more important than ever

Cannabis retailers need every tool in the shed if we’re going to reverse pricing compression. And as inflation makes many nervous, adding a tactic that has been proven to be successful to your strategy is a no-brainer.

Menu engineering and segmentation has been around for decades. It can assist the cannabis industry to connect the right products with the right customers.

By paying extra attention and analyzing your data, you can create a leaner menu that satisfies and delights customers while also protecting profitability and reducing inventory. The purpose of menu engineering is to offer popular products that drive profits, while also controlling costs and reducing inventory bloat. And by prioritizing products that are lower-cost and higher-margin, your menu is more efficient in generating profits.

We recommend that you do menu engineering every 6 months to ensure your inventory is performing as profitably as possible.

Tips for retailers and producers:

Retailers:

• Consider the number of touchpoints you have for your products, including digital and menu (online and in-store) displays, as well as store displays and signage. Identify how many touchpoints each category has.
• Target one work horse per month. Consider a strategic price increase. Is it the product itself that performs well, or is it the entire product category?
• Identify your Walkers. These are products that are high profitability/low velocity. Is there potential to increase their velocity? Often, providing product training to budtenders can achieve this goal.

Brands:

• Collaborate with retailers to identify which of your products are slow-moving or have a long shelf-life. Work with your team to add value or a story to these products to help budtenders facilitate difficult discussions.
• Create an online resource that allows budtenders and buyers to order printed materials and download digital assets from various menu providers. This will increase touchpoints and facilitate the promotion of different products.

If this blog post has inspired you to start categorizing your products or has made you curious about the true costs of your products, be sure to sign up for our newsletter. We help our subscribers tap into industry insights and recognize the signs of success to drive their businesses toward higher profitability.