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Should a Restaurant Partner with Groupon?

Capital OneData Analyst · Technical Screen
EasyData AnalystTechnical ScreenAnalytics & Experimentation

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This question evaluates a candidate's competence in unit economics, break-even and profitability modeling, and the ability to distinguish incremental versus cannibalized customers when assessing voucher-based promotional partnerships, reflecting skills in revenue modeling, cost accounting, and business analytics.

A restaurant is deciding whether to partner with a daily-deals platform such as Groupon. You are asked to work through the unit economics and make a recommendation.

The restaurant's current business is:

  • 20 tables served per day
  • Average spend: $30 per table
  • Variable cost: $0.40 per $1.00 of customer spend (i.e. 40% of spend)
  • Fixed cost: $100 per day

A Groupon-style offer is proposed:

  • A customer pays $15 for a voucher worth $30 of menu value.
  • Groupon keeps 40% of the $15 payment and remits the remaining 60% to the restaurant.
  • If the customer spends more than $30, the excess is paid directly to the restaurant at face value.
  • Assume every Groupon customer spends at least $30.

This is a mini-case: work the arithmetic, but the interviewer is really probing whether you reason about incremental vs. cannibalized demand rather than top-line traffic.

Constraints & Assumptions

  • Variable cost is always 40% of the customer's actual menu spend (not of the price they paid).
  • Fixed cost of $100/day is sunk with respect to per-table decisions in the short run.
  • The $30 voucher value is recognized as $30 of menu consumption; the restaurant's cash receipt on that first $30 is only the 60%-of-$15 remittance.
  • "Profit" means daily operating profit = total contribution − fixed cost.
  • Treat each table as one party; "average spend per table" and "average check" are interchangeable here.

Clarifying Questions to Ask

  • What is the restaurant's current capacity utilization? Are tables sitting empty (especially off-peak), or is it usually near full?
  • What fraction of Groupon redeemers are expected to be genuinely new customers vs. existing regulars trading down to a discount?
  • Is the goal short-run profit, customer acquisition, or steady-state profitability after a launch period?
  • Are there redemption controls available (off-peak only, new-customers-only, daily voucher caps, minimum spend)?
  • What is the typical repeat rate of a Groupon customer at full price afterward, and over what horizon should we evaluate it?

Part 1 — Factors to consider

Before any math, what factors should the restaurant consider before partnering with Groupon? Frame the decision, not just a list.

What This Part Should Cover

  • Capacity utilization and whether discounted diners would displace full-price ones.
  • Incrementality vs. cannibalization of existing demand.
  • Per-table contribution under the deal (not gross sales) and downstream LTV/repeat behavior.
  • Operational and brand consequences of deep discounting plus deal-structure levers (commission, caps, restrictions).

Part 2 — Baseline profit and incremental break-even

(a) What is the restaurant's current daily profit without Groupon?

(b) For a Groupon customer, what average spend per table is required for the restaurant to break even on a purely incremental basis (i.e. a customer who otherwise would not have come)?

What This Part Should Cover

  • Correct baseline profit using contribution margin and the fixed-cost subtraction.
  • A correct revenue model for a Groupon table: the discounted receipt on the first $30 plus face-value excess.
  • A clean break-even equation and the interpretation of the resulting threshold spend.

Part 3 — Recommendation: incremental vs. cannibalized

Based on the break-even result, would you recommend partnering with Groupon? Explain the difference between evaluating an incremental customer (who would not have come otherwise) versus a cannibalized existing full-price customer (who would have come and paid full price). Make the comparison quantitative.

What This Part Should Cover

  • A clear statement that the recommendation hinges on the incremental share of Groupon customers.
  • The contrast between the incremental break-even bar and the (higher) cannibalization break-even bar, with numbers.
  • A capacity-conditioned recommendation (idle tables → more favorable; capacity-constrained → unfavorable).

Part 4 — New scenario and diagnosis

(a) Now suppose the restaurant serves 25 tables per day, the average spend is $36 per table, fixed cost remains $100 per day, variable cost remains 40% of spend, and 10 of the 25 tables use Groupon (the other 15 pay full price). What is the new daily profit?

(b) Why might profit be lower than in the original $260 scenario even though both table count and average spend increased?

What This Part Should Cover

  • A correct split calculation (regular vs. Groupon tables) yielding the new profit.
  • The insight that gross sales ≠ profit: the per-table contribution gap on Groupon tables drives the decline.
  • Naming this as a metric-selection lesson (optimizing covers/gross spend can hurt net contribution).

Part 5 — Strategy: when to do it anyway, and how to improve it

(a) Under what business conditions would you still consider Groupon despite lower short-term profit?

(b) If the restaurant does partner with Groupon, how could it improve profitability? Be specific about levers.

What This Part Should Cover

  • Conditions tied to unused capacity, incrementality, and marketing/launch value, with a measurement caveat (selection bias; pilot/holdout design).
  • A structured set of profitability levers across deal terms, cannibalization control, AOV, and repeat-value capture.

Hints

Hint 1

Where to start: Separate **gross demand generation** (more covers, bigger checks) from **profitable demand generation** (net contribution per table). They can move in opposite directions.

Hint 2

Dimensions to surface: Think about capacity utilization, incrementality vs. cannibalization, contribution margin under the deal, customer lifetime value / repeat behavior, operational strain on service, and brand/positioning effects.

Hint 3

Contribution margin: With variable cost at 40% of spend, every $1 of menu spend yields $0.60 of contribution before the Groupon cut.

Hint 4

Model the Groupon cash receipt: On the first $30 of value the restaurant does **not** receive $30. The customer paid $15; Groupon keeps 40% of $15. Work out the restaurant's cash on that first $30, then add the excess $(x-30)$ at face value to get total revenue as a function of spend $x$.

Hint 5

Set up break-even: Write contribution as (restaurant revenue) − (0.4 × actual spend), then solve for the spend $x$ that makes a single incremental Groupon table's contribution equal to **zero**.

Hint 6

The right benchmark: For an incremental customer the bar is contribution ≥ 0. For a cannibalized customer the bar is the contribution the restaurant **gave up** by discounting that table. Solve for the Groupon spend at which the discounted table matches a normal full-price table, and contrast the two thresholds.

Hint 7

Split the tables: Compute contribution per regular table and per Groupon table separately at the $36 check, multiply by counts, then subtract fixed cost. The Groupon table's revenue still loses the ~$21 deal gap on the first $30.

Hint 8

Diagnose the drop: Compare per-table contribution: a $36 regular table vs. a $36 Groupon table. The gap explains why more covers and a bigger average check can still reduce profit — top-line up, net contribution down.

Hint 9

Conditions: Idle capacity (high fixed / low marginal cost), genuine new-customer acquisition with repeat potential, launch/marketing exposure, and tight targeting to off-peak windows where seats would otherwise be empty.

Hint 10

Levers: Group them: improve deal economics (commission, voucher generosity such as $20-for-$30, minimum spend, daily caps), reduce cannibalization (new-customers-only, off-peak-only), raise average order value (upsell/bundle), and grow LTV (capture contacts, bounce-back full-price coupon).

Follow-up questions

  • If you could run an experiment to measure Groupon's true incremental value, how would you design it (holdout, time/location windows, what you would measure, and over what horizon)?
  • How does the recommendation change if average Groupon spend is $50 instead of $36? At what spend does a Groupon table beat a $30 full-price table?
  • How would seasonality or day-of-week capacity differences change which redemption restrictions you'd negotiate?
  • Suppose 30% of Groupon redeemers return at full price within 90 days. How would you fold repeat value into the per-table economics, and would it change the decision?