Here is my answer.
You can do it with a tube feature if it's a ball end groove.
To get it to work and remain associative you need to drive it with an intersection curve.
1) Create a plane at the location you want the groove.
2) Create an intersection curve using the iside face of the cylinder and the offset plane.
3) Create a TUBE feature using single segment as type.
4) Enter the diameter for the groove hit OK.
5) Select the intersection curve as your guide curve.
6) Select subtract as operation or create if you want to use a boolean feature
Hope this is what your looking for, or at least points you in the right direction.
Michael