FRESHHH2018 – part RETAIL

Game Rules
Welcome to the RETAIL Simulation part of Freshhh2018
Programme!

Game concept

In this game You and Your teammates face the exciting world of retail business! Your team is
the management of a service station network in a virtual country. Service stations are the
next step of the retail business: not just selling gasoline but to provide high-class services
and goods as well.

The purpose of this manual is to show the economic environment step by step, the decision
possibilities, the frames in which the virtual service station network will operate.

Your task is to create a successful business strategy based on the market analysis. The goal is
to manage the operation of the service station network in the most effective way, in order
to maximize the average Return on Assets, the ROA (ROA = Profit/Assets) in the next 10
virtual years. The profit is calculated in the Profit and loss statement, and the Assets value is
the Total Assets line of the Balance sheet.

The game has 10 periods (turns), each period represents a year (twelve months). In each
period you should make decision for the next year and indicate them on the online „Decision
Form” which you can reach by logging in on the www.freshhh.net website. Your decisions
are processed by the simulation software which creates reports and statistics. Continuous
reviewing of the Reports in line with the reading of this manual is recommended!

In the game each team is on a separate market, they only interact through the marketplace.
The company sells fuel (gasoline 95, gasoline 98, normal diesel and premium diesel) and
other products in the shops in the following categories: basic, non-food, hot beverages,
grocery and restaurant.

Your company, the network has 91 service stations which are technically the same at the
beginning. There are 6 fuel pumps and 100 m2 shop at each service station. It operates with
16 opening hours, between 6:00 and 22:00. The station can be found in three different
localization areas: in the city, highway and countryside.

There are 2 kind of decision type: global and local. You can set the local decisions in the
localization panel, any other decision are global. You have to make local decisions for every
localization areas; it means that you can decide on different prices on the same product at
different segment. The station acquaintances, promotion and maintenance budget are also
considered to be local decisions. On the other panels any decision you make applies for all
the three localizations.

On default the decisions you make in the n period will have effects in the n+1 period,
however, there are some exceptions. For example the pre-order decision will not have an
effect in the n+1 period but in the n+2.

In the game the scope of activities can be extended by providing charge station services, by
offering car wash service and by initiating various projects. These projects are described at
the end of this manual.

In the game the unit of currency is Freshhh dollar (F$).

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Strategy

The goal is to manage the service station network efficiency in order to maximize the
average ROA (=Return on Assets, the ROA (ROA = Profit/Assets)). For this you should take
into consideration the marketing mix (4P=Product, Price, Promotion, Place), the optimal staff
number, the logistic capacity, the market information about the consumers and the demand
forecast. These key criteria are in connection with each other, so good performance in an
area has an effect on the other areas too. If a goal – e.g. the market share increasing - is in
your focus, the company is likely to be forced to make a compromise in other fields, e.g.
margin rate. The performance of the team depends on the decisions they made. Also the
general market/economic trends must be taken into consideration.

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The Decisions

The service station network is managed by your team by yearly (12 months) strategic
decisions.

The decisions to be made and the results are shown in the online report. You can set your
decisions on the input fields in the online platform. The decisions can be classified into the
following categories:

I. Supply/Pricing V. Maintenance

II. Promotion VI. Finance

III. Opening hours VII. Market information

IV. Human Resources VIII. Extraordinary events & projects

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Supply/Pricing
The company orders the gasoline, diesel and the alternative fuel from the nationwide fuel
wholesaler. The contracted suppliers of the shop are also specialized wholesalers.

This table shows the fuel products. The unit of measure is Thousand liter = kLiter.
The purchase price is the price you pay for the wholesaler for the fuel. The wholesaler
delivers the ordered fuel to your Headquarter where you have store capacity, listed below in
the table. The final pricing of the fuel products is your task, the purchase prices are however
fixed during the game (see in the table below). You can set the prices for the different fuel
types in the localization panel, for all three segments. (See more about localization segments
at the market information section.)

Product Unit of measure Purchase price Store capacity

Gasoline 95 Thousand Liter 84 F$/k Liter 1 800 k Liter

Gasoline 98 Thousand Liter 89 F$/ k Liter 400 k Liter

Diesel Thousand Liter 88 F$/ k Liter 1 800 k Liter

Premium Diesel Thousand Liter 95 F$/ k Liter 400 k Liter

The orders should be posted on the decision form for the actual year. The ordered fuel and
products constantly (daily delivery) arrive at the service stations, but since a year is treated
as one time unit, a yearly quantity of fuel and products should be ordered. This means that
the order above your store capacity is valid! The ordered stocks are paid at the period of the
delivery.

The accurate order is the responsibility of the management, so if the fuel store capacity is
not enough for the year end stock, the remaining stock will be stored at the wholesaler
(external inventory) for 5% of the value of the leased stored stock. This cost will appear as
Other misc. costs. The store capacity of the shop is not limited in this game, however
storage costs (5%) should be paid as well.

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There is a possibility to order in advance (pre-order; e.g. set an order for ‘n+2’ year in the ‘n’
year), in this case the wholesaler pays back the 3% of the value of the pre-order. The risk of
order and the stock surplus is also the responsibility of the management.

Now you have an opportunity to provide charging services with the charge station project.
You can make this decision in every localization (city, highway, countryside) and you have to
start to project in there, if you want to set the prices for these services. There are two
different methods available, a fast and a slow charge. Naturally you have to set the prices
differently for each method AND in each localization where the project have been started.
Check out the Market research (in the game platform) for more info about this service!

The shop product pricing is to set the margin percentage only. You are free to change the
margin of all five product types in the localization panel.

Shop product assortment What is it?

Basic tobacco, mobile phone cards and newspapers

Non-food lubricant, accessories and tools

Hot beverages* high-class hot beverages, coffee, tea

Grocery* everyday goods, like milk, egg, bacon, bread

Restaurant* separate restaurant section in the station

*Requires a project

The stocks of the shop are valued on the purchase price, so the orders should be posted on
the purchase value as well.

Your customers are price sensitive. The market tolerates smaller price increasing, but there
is a point where the price is too high and the customers abandon your network.

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Promotion

The service station network spends money for the promotion locally. The management of
the company decides about the budget for the promotion. With higher promotion budget
you can strengthen your company brand, which will result in higher sales amounts. The
promotion expense has no limit, but the growing expenses increase the sales in a decreasing
measure.

Be sure to set the promotion budget for all three different localizations.

Beside the promotion budget, you can make decision about the fuel card and multi point
card. There are project-like decisions, which means that you can only decide when to start
the projects (in which period).The fuel card is a pre-pay tool for companies, with which the
employees (like truck drivers, couriers) can buy fuel and goods at the services station. By the
multi point card consumers can collect points, which will give them discounts.

These projects will increase the effect of your promotions by about 10%. For further
information about the projects, see the end of the gamerules.

Opening Hours

The basic opening hours are between 6:00 and 22:00. The opening hours can be extended to
0-24, but it requires more persons/station in the staff. The additional number of employees
will be hired automatically to reach the minimum number of staff in case of 0-24 opening
hours. Besides that the energy costs are also rising with ~45%. And of course at night, the
transit traffic generates new demand opportunities. The growth is different in the traffic of
every costumer segment. While it is really high (above 10%) in the corporate segment, it is
the lowest in the low-end residential segment (below 5%).

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Human Resources

There are three types of staff in the simulation.

The Station staff operates the gas stations and the shops. The simulation automatically
handles the number of employees, you will need one for every 30 000 F$ sales revenue.

The Logistics staff operates the fuel logistic of the network between the headquarter and
the gas stations. The logistic staff is capacity based, one logistic employee can manage 2 850
F$ worth of capacity. The number of logistics staff is automatically calculated as well.

The Admin staff is fixed number and their salaries is the average of the salary of the Logistics
and the Station staff.

Wages

The salary for the Station and for the Logistics staff is different in the beginning of the game.
The wages can be changed, but it cannot be less than the 300 F$ / person minimum salary.
More salary means more employee satisfaction and performance. The wage is yearly.

Training

The management spends money on the training of the employees too. Language,
communication and technical trainings have effect on the level of the operation and
customer service. You can set the total budget of training. Note that if you do not spend on
training at all, it has a very negative effect. The training budget always appears as a cost for
the company.

HSE, Logistics and Maintenance

The HSE (Health, Safety and Environment) and maintenance expenses are for the safety of
the service stations, minimizing the environmental pollution and improving the aesthetic
level (decoration, design). The more money the company spends for HSE & maintenance, the
more attractive it will be. You can set different maintenance budget for each localization
segment (city, highway and countryside).

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The company needs logistics equipment (machines and vehicles) to distribute the fuel
among the gas stations. The necessary logistic machinery capacity is the ordered amount /
100. The ordered amount is calculated as purchase price x amount ordered (or pre-ordered)
in case of fuels and purchase value in case of shop products. So to be clear: 100 000 capacity
unit can handle up to 10 000 000 F$ value order. Note that the calculations will be made
with the average logistics capacity, as it models the whole year.
If you do not have enough equipment, your actual orders will be decreased by your actual
capacity and maybe you will not have enough fuel to sell.

Marketplace
In the Marketplace you have a chance to offer some Logistics equipment to the other teams
or you can bid and buy their offered capacity.
You can make an offer in every 2 years and it lasts for 1 year (period).
The offering price is 5%.

Finance
The company can be financed from external sources (bank loan).

The bank automatically provides overdraft loan (short term loan) in case the company run
out of cash, but you should try to avoid that! In the next period the loan should be refunded,
if the company still requires cash, the bank will provide a new loan. The interest of the loan
will be paid in the next period, interest rate is 6%/period. The interest rate should be payed
after the amount of loan in the balance sheet in every period.

The team can also decide to arrange a contract for long term loan with the bank. It is
simplified in the game, so you can only set the amount of cash you would like to borrow. It
can be taken up in any period and the cash will be available instantly, and can be repaid
totally or partly in any period. The interest has to be paid in the current period upon the
amount of the actual long term loan. The interest rate is 3% per year. The long term loan
limit for your company is F$ 9 500 000.

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The company has long term loan in the beginning, you can check that in the balance
sheet/liabilities/long term loan. Currently only the interest should be paid, which is
3%/period. The default decision for receiving loan is F$ 1 600 000. It means, if you do not
change that in the financial statements panel, you will receive that amount each year.

For the suppliers of the company (wholesalers, service providers) pay the invoices with app.
30 days due date.

Dividend: In case of profit, the dividend payment is 100% of the profit according to the will
of the owner of the company during the whole game.

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FINANCIAL STATEMENTS

The financial statements include the profit and loss statement, the cash flow and the balance
sheet.

Profit and loss statement

On one hand the profit and loss statement shows the net revenue in a period; the sales, the
cost of goods sold (shorting: COGS), and the gross margin of each product types. The
companies receive interests (1%) on the cash balance at the end of the year; the income of
the interest is also included in the profit and loss account. Other income is basically not used
in this game.

On the other hand the profit and loss statement shows the costs which are deducted from
the gross margin.
- Promotion: costs of promotion
- Wages: all the amount paid to the employees
- Training: budget of the training of the employees
- HSE & Maintenance: summarized costs of maintenance
- Energy: energy and other utility costs (based the number of stations you have, on
default 2 500 F$ per station)
- Office overheads: office and other administration costs (1% of the revenue and 3% of
the number of staff)
- Depreciation: depreciation costs of fixed asset, yearly 2,5% of the fixed assets + the
depreciation of the logistics (10%)
- Projects: costs of started and ongoing projects
- Market research: costs of market research, fix 750 000 F$ in the game
- Interest: interest of investment loan and the other loans of the previous period
- Other miscellaneous costs: other costs, e.g. storage costs

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 - Corporate tax: the tax rate is 40% in the game, in case of loss the tax is zero

Balance sheet

The first part of the balance sheet shows the company’s assets, which are the followings:

Cash: The closing cash from the Cash flow.

Inventories: Fuel and shop products stock at the end of period (stock remained after sales)
Machines: the value of the logistics, equal to the closing capacity
Fixed assets: the equipment of service stations and buildings. Depreciation is 2.5%/year.
Land: land of the service stations and the HQ

The passives (liabilities) of the balance sheet (second part) are the origin of the company’s
property, which are the followings:

Long term loan: investment loan

Short term loan: overdraft (automatic)
Suppliers: debit to the company’s suppliers
Share capital: the amount that the founders invested into the company
Reserves: accumulated net earnings of the company
Profit/Loss: profit/loss made in the period

Cash Flow
In the cash-flow, the cash-ins are marked positive, while cash-outs are marked as negative
numbers.

Sales: Total Sales from Profit/loss and carwash income and interest income
Operating costs: Operating costs from the profit and loss statement except depreciation

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Project investing: The amount of cash needed for the project to start
Machines: The logistics investments
Stations: Cash investment on case of station acquisition
Loan payback: the amount of paid back loan
Loan receive: the amount of loan you borrowed
Interest rates: interest rates paid after the loans and here appears the overdraft from last
year (it is automatically repaid)
Dividend: equal to the profit of the last year (in Y1 you pay the Y0 profit as dividend)
Overdraft: the automatic, short term loan

Market Information

Information about the market and the competitors is available in order to help the team to
make decisions. This information can be found in the market information panel and is
different in each period. It is really valuable for you and the price cannot be changed.

There are 3 different consumer segments, each have different preferences. In the market
information panel you can see their preferences for each product. You can interpret the
tables as the followings:

Customer preference: It means that from the whole customer base this percent will likely to
choose the product on the total market.

Avg. consumption: If the consumer will buy your product, this amount would be sold.

Customer sensitivity: Based on these factors, the customer will decide if he/she buys your
product or not. The weighting of these factors are shown in the tables.

Localization segments and traffic forecast

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As we mentioned before, you have to distribute your resources in 3 different localization
segments: city, highway and countryside. In the Localization panel, you can make decisions
about each panel. You can also see there the base of the expected traffic for that location
(for all 3 different customer segments). This is for the total market and in order to predict
the actual sales amounts, you should take into consideration other factors as well (see the
examples above).

Firstly, you should calculate with the coverage ratio in every segment. It shows how well you
cover the whole market, so if it is for instance 75%, it means that you only reach 75% of the
total customers shown in the expected traffic. This will be your base traffic. After that, you
should calculate with the factors given you in the market information panel (customer
preference, avg. consumption, customer sensitivity, etc.). And finally consider that the
customers are sensitive to your decisions. If you raise the price, there will be less customers
and so on.

Let us show an example.

The expected traffic for a customer segment is 100, the customer preference for Gasoline
95 is 60%, the avg. consumption is 0.6 unit (in this case kLiter) and their preference is as
follows: (65% price, 20% brand, 5% training lvl, 10% maintenance). Also, your company in
this localization has 80% coverage ratio (this ratio shows the number of reachable customer
out of the total).

So the number of reachable customers are 100 x 80% = 80. The number of customers who
prefers the product is 80 x 60% = 48. Usually this is the base number, but you can boost it
with better product attributes! Let’s see the customer preferences! This segment seems
really price sensitive on the fuel market and the brand is also important for them. So if I
decrease the price and raise the promotion budget, the traffic will be higher, maybe 60 (note
that there are other factors as well, so the forecast is more difficult than this example). This
60 customers will have an average consumption of 0.6 kLiter in a year, so the forecasted
product sales are 60 x 0.6 = 36 kLiter in the Gasoline 95 market.

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Acquisition and construction

You have the opportunity to acquire or sell gas stations. The acquired station will not be
different from the ones you owe already. The price could be different in each period, you
can check it in the localization panel. You can acquire a maximum of 5 stations per period for
the next period.

The effects of the acquisition:

- The fixed assets will grow with the notional amount of the price.

- The purchase of machine in the cash-flow will grow with the notional amount of the
price.

- Your number of stations (and your coverage ratio) will grow.

You shall be careful about the amount of your acquisitions, because it can affect your ROA
grossly.

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PROJECTS

Differentiate your service station with the unique projects above!

Beyond the above mentioned operative and periodic decisions, there are various available
projects. You can start any of these projects to widen the service of your service station.
With the new product line new demand opportunities will appear! The permanent costs are
valid in every year, including the starting year. Also there is an expenditure, which is not a
cost, however it will appear in the cash-flow statement.

Maximum 1 projects can be started in a period (including the 2 promotion projects: the
multipoint and fuel card.) Be careful in which segment you start a project; because it cannot
be stopped once it has been started. The effects of the projects are applied in the game on
the next turn. The time remaining column shows the number of period required by the
project to start. If the value is zero, the project will start next year.

Your project investment will affect the appearance of your station! Change the localization
on the bottom-right side to see the difference!

Cash investment (F$) Permanent

costs
Added to purchase of
Project description Effects
(F$/period)
machine and fixed
assets Project costs

1. Charge station

The gas station network will be able to New product

350 000 300
provide charge services. Two methods line!

will be available a fast and a slow one.

2. Hot beverages

The complete renovation of the shop in New product

1 800/station 100 / station
order to make a high-class coffee line!

corner.

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3. Grocery

The complete renovation of the shop in New product

950/station 260 / station
order to make a high-class coffee line!

corner.

4. Restaurant

High-class restaurant attached to the New product

2 500/station 350 / station
main building, in order to satisfy the line!

specific consumer needs.

5. Car wash
New product
Separate, highly equipped automatic car 950/station 260 / station
line!
wash.

6. Green Energy Innovation

In order to reduce the energy Lower energy

consumption of the station, the total costs by 15- 800 / station 100 / station

heating and cooling system is replaced 20%

and a new fridge room is also installed.

Scoring & Ranking

The teams are going to be ranked according to the average ROA they have on their account.
SCORE depends on the number of teams ranked by RESULT (average ROA). E.g: If 1000
teams play, the 1st team will earn 999 points (the number of teams they preceded).
Decisions made in the final turn (Turn #10) are also going to be evaluated. The 10 teams with
the highest scores at the end of the Online Qualification are going to be qualified for the
second round of the competition, the Semifinal.

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