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Riki’s Restaurant (RR)
RR is a restaurant based in country W. The business was set up in 1980 by sole trader, Riki. RR developed a positive reputation for tasty food, reasonable prices and outstanding customer service leading to loyal customers. RR made a profit every year.
At the end of 2020 Riki retired and sold RR to Chelsea, an entrepreneur. Chelsea had just completed a business management degree and wanted to grow the business steadily over the first five years of ownership. Chelsea also aimed to increase profitability by at least 30% by the end of 2025. Chelsea believed that this could be achieved by a human resource (HR) strategy to increase efficiency by reducing labour cost, the highest cost of the business.
Timeline of RR
2021 Sole trader Chelsea takes control of RR on 1st January 2021. RR has a total of 20 employees. All employees have permanent contracts with fixed hours. Many of the employees have worked for RR for over 30 years. Chelsea introduces an HR strategy to increase efficiency by reducing labour cost (see Appendix 1). Five employees, two chefs and three customer service employees, are made redundant. Problems with the customer booking system due to employee errors. This led to disciplinary action. 2022 Labour turnover starts to increase (see Appendix 2). Customer satisfaction starts to fall (see Appendix 3). Annual revenue is 50% lower than 2021. 2023 Chelsea reports a loss of $52 500. Chelsea struggles to raise finance to improve the liquidity of RR. 2024 Chelsea accepts Mario as an equal partner into the business. Mario is a successful chef with many ideas to improve the business performance. Chelsea retains responsibility for the operations and HR functions. Mario takes on responsibility for the marketing and finance functions. Mario assesses RR’s financial performance over time (see Appendix 4). 2025 Mario considers a recent market research report (see Appendix 5).
Developing a new business strategy
Mario wants to improve the performance of RR against its competitors. Mario needs advice on the most appropriate approach he could use to develop a new business strategy to achieve this.
Appendix 1: Summary of Chelsea’s HR strategy for RR in 2021
Changes to contracts
• All employees to move to zero hours contracts to match demand and employees’ availability. • Employees to be given seven days’ advance notice of their weekly hours. • Staff discount reduced. • Opportunities for individual bonuses to be earned.
Changes to job roles
• All employees to be multiskilled to increase flexibility and job variety. • Some training offered. • Customer bookings only accepted online.
Appendix 2: RR’s labour turnover data between 2021 and 2024. 2021: 12%; 2022: 35%; 2023: 55%; 2024: 48%.
Appendix 3: RR’s customer satisfaction data between 2021 and 2024. 2021: 74%; 2022: 40%; 2023: 25%; 2024: 31%.
Appendix 4: Extracts from RR’s financial statements between 2021 and 2024. Columns in order: 2021, 2022, 2023, 2024. Revenue ($000): 400, 200, 150, 220. Direct costs ($000): 150, 150, 180, 180. Acid test ratio: 1:1, 0.8:1, 0.3:1, 0.2:1.
Appendix 5: Market research report summary in 2025
• There are 57 restaurants within a five-mile radius of RR. • 67% of the local market is dominated by international fast-food companies. • The demand for mid-priced restaurants is increasing due to an economic downturn. • Some successful local restaurants are developing new menu options aimed at vegans.
Evaluate the impact of Chelsea’s HR strategy on RR’s performance between 2021 and 2024.
Evaluate the impact of Chelsea’s HR strategy on RR’s performance between 2021 and 2024.