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)?