With rising costs and high inflation continuing to make their presence felt in the food and beverage industry, managing your margins has become critical. Menu optimization is a key part of this process. To balance costs and satisfy customers, you need a comprehensive view of the demand, profit, and revenue associated with each dish. How? Through data collection and analysis.
Traditionally, restaurants have relied on spreadsheets, sales records, and cash register data to build their strategy. But these approaches are no longer viable. In such a volatile, highly competitive industry, efficient menu management requires a unified system that collects metrics from all operational areas. That’s where ABC and XYZ analysis comes into play.
What is ABC Analysis?
ABC analysis, based on the 80/20 Pareto principle, is the management of categorizing items within an inventory management system according to their overall value. The approach is based on the idea that 80% of sales can be attributed to 20% of products. This means classifying items in descending order under categories A, B and C. It is divided into columns according to sales volume, turnover and profit achieved.
So for a restaurant owner, a top-selling dish that generates high revenue and profits would be designated as a AAA item. On the other hand, a low-selling dish that doesn’t generate much revenue or profit would be assigned a CCC rating. Beyond these simple classifications, the model allows you to gain deeper insights into specific menu items so you can make more subtle but meaningful adjustments.
For example, let’s say you have a sales item with an AAB rating. This generates a lot of sales, but the margins are low. Based on this classification, you can decide to reduce the sales item’s material costs or increase its profit margin. What about products with a BAA, BAB, or BBA designation? These sales items have low sales but high margins. Therefore, you may want to increase their visibility by making menu adjustments or running promotions to increase customer awareness.
What is XYZ Analysis?
The XYZ approach allows you to understand the performance of sales products over a period of time. As with the ABC approach, menu items are arranged in descending order according to their sales performance over a period of time.
According to the coefficient of variation, products are assigned a percentage. The higher the percentage, the more inconsistent the sales. For example, a dish with classification X will have a consistent demand, meaning the coefficient ranges are low (0%-10%). Those in group Y usually have a fluctuating sales volume with a coefficient of 10%-25%. Products in group Z usually have an unpredictable demand, usually 25% and above.
Putting all this together, demand for sales items in group X can be easily predicted, while items classified as Y can be ordered less frequently. Those classified under Z should not be ordered very frequently.
Pairing ABC with XYZ analysis can provide invaluable insight into your menu. It will allow you to make adjustments that will increase profitability and positively impact other areas of your operation. So you may have assumed that this powerful methodology is widely used in the food and beverage industry. But it’s not. Collecting and analyzing large amounts of data is a laborious and complex process when done manually. It requires skilled personnel, or at least personnel who can interpret the metrics. Many business owners don’t have the resources, staff, or desire to take this step. Another barrier to adoption is that most restaurants’ POS systems don’t include ABC/XYZ functionality.
Syrve is an exception to this.
ABC/XYZ Analysis with Syrve
Unlike other restaurant management platforms, Syrve lets you fully leverage the potential of ABC/XYZ analysis. You don’t have to be an analytics expert, you don’t have to sacrifice valuable resources on hiring, and you don’t have to spend time setting up elaborate processes.
Syrve’s next-generation platform automates the entire process. It automatically collects and tracks critical metrics from multiple data points. The resulting data is then easily accessible via Syrve’s reports dashboard.
Let's now take a deeper look at how Syrve applies ABC/XYZ analysis.
Data Collection
It all starts here. Syrve collects data from your POS system as orders come in and tracks the sales volume and frequency of each menu item. Stock levels, stock movements and supplier purchases are also constantly monitored in real time.
ABC Categorization
Using data collected from the POS system, Syrve automatically categorizes products based on consumption rate and profitability potential.
XYZ Categorization
Instead of relying on formula-laden spreadsheets, you can access all the ABC/XYZ data you need through Syrve’s reports panel. From there, it’s easy to identify individual or grouped menu items and view the number of products in each classification. Histograms and charts are also included to help you digest the data.
Menu Analysis and Suggestion Tool
An extremely powerful menu analysis tool is also included as part of the package, providing three suggested actions for each menu item based on ABC/XYZ metrics;
Reduce cost, stimulate sales, or take it off the menu.
Using ABC/XYZ analysis can have far-reaching consequences for your restaurant, all of which are positive. We’d like to share some insight into how it can help in practice:
1. A more profitable menu
With the ability to identify top-selling and underperforming dishes, you’ll be able to fine-tune your menu. High-demand items can be featured more prominently to maximize profitability, while non-selling items can be removed from your menu entirely.
2. Optimized stock levels
ABC/XYZ analysis helps optimize stock levels, prevent over/understocking, and eliminate unnecessary purchases by aligning inventory levels with product importance and demand trends.
3. Cost savings
Focusing on bestsellers and removing underperforming sales items from your menu will cut down on material costs and significantly reduce waste. In the long run, this will have a huge impact on your profitability.
4. Happier customers
You’ll also have happier customers as you’ll ensure popular, high-value dishes are consistently available, regardless of spikes in demand.
As a result, ABC/XYZ analysis, when implemented with Syrve, provides a comprehensive plan for managing your restaurant’s inventory. Considering that this powerful solution is not widely used in the F&B industry, you have an excellent opportunity to gain a significant advantage over your competitors.
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