Evaluate food-court profitability and membership strategy

## Product/Business Case: ValueInc food court (Costco-like) ValueInc is a membership-based warehouse retailer. We also operate an **on-site food court** that is **open to both members and non-members**. The **hot dog combo** is the primary reason many people visit the food court. Leadership is worried the food court may be attracting many **non-members who only buy hot dogs**, and that ValueInc is “missing profit” (e.g., subsidizing visits that don’t translate into profitable retail purchases or membership growth). ### Data (given as a summary table) Assume you can obtain the following annual metrics (or a similar table). Define and use these fields explicitly in your analysis: - **Member spending** (retail + food court), and **Non-member spending** (food court + any retail if allowed) - **Profit margin for non-combo items** (food court items other than the hot dog combo) - **Cost of combo** (unit variable cost of the hot dog combo) - **Average spending for multi-purchase member** (members who buy food + also purchase other items) - **Non-members annual revenue** (from food court and any allowed retail) - **Hot-dog-only non-member visits** (# visits where a non-member purchases only the hot dog combo) - **Multi-purchase member visits** (# visits where a member purchases hot dog combo + other items) You may assume fixed costs exist (labor, rent allocation, equipment depreciation), but they are not provided unless you ask. --- ## Questions Answer as a structured analysis. Clearly state assumptions and any additional data you would ask for. 1. **“How much profit did we not catch?”** - Propose a rigorous way to quantify *missed profit* (or profit leakage) attributable to opening the food court to non-members and/or pricing the hot dog combo as a loss-leader. - Specify what counterfactual you are comparing against. 2. **What are the main risks and drawbacks** of the current setup (food court open to non-members; hot dog combo as the main draw)? Include both business and measurement/causal risks. 3. **What can we do?** - Propose multiple strategies to improve profitability while considering member experience (e.g., pricing, bundling, gating, conversion tactics, limits, promotions). - For each strategy, identify a primary metric and at least 2 guardrails. 4. **Breakeven analysis:** What number of customers/visits do we need to breakeven? - Define a breakeven equation that includes fixed and variable costs. - The question has “hidden information”: clarify what segmentation you need (member vs non-member; hot-dog-only vs multi-purchase; incremental retail basket). Explain how the composition affects breakeven. 5. **Pricing change:** If the hot dog combo price increases to **$2.50** (from the current price), what should we do? - Outline how you’d estimate price elasticity and forecast demand/profit impact. - Discuss risks (e.g., brand perception, traffic drop, membership value proposition). 6. **Vertical integration:** Leadership is considering making hot dogs in-house. - What factors should we consider (costs, capacity, quality, supply chain, regulatory, operational complexity)? - Provide pros/cons and what analysis/experiment you would run before committing. 7. **Membership gating:** If we switch the food court to **members-only**, what are the advantages and disadvantages? 8. **Exit option:** What’s the cost to “get rid of” (shut down) the food court? - List one-time and ongoing costs, and second-order effects on retention/traffic. 9. **Final risk check:** What risks should we be mindful of when interpreting results and making the decision (confounding, cannibalization, seasonality, selection bias, spillovers)?