ABSTRACT
We propose a cost–benefit approach for assessing the viability of product improvement decisions in independent restaurants. We investigate the costs and benefits associated with using local foods as a product improvement strategy by three independent restaurants. The results of the study suggest that the discounted cash flows of the selected menu items in each of the three restaurants were negative. Based on this analysis, the three restaurants would reject the strategy to source local ingredients for the sample menu items. We apply Monte Carlo simulations to assess the sensitivity of cost and price changes, and suggest price levels at which sourcing local foods would be acceptable in these sample menu items. We discuss the financial implications of adopting local foods as a product improvement strategy. Furthermore, we highlight the value of using menu level microdata, analyzing broader costs and benefits in product improvement decisions, and simulations and sensitivity analysis.
