North South university

Strategy and Structure of the Food and Beverage Industry

Course: Mgt 489 section: 6

Shahedul Alam (Shl)

10/7/2015

Done By: Group 4Fahima Ayesha Choudhury 1210030030Zareen Tasnim Lazima 1210828030Ashik Mahmood Andalib 1110448030Mohammad Atikul Haque 1110244030Saiful Alam Sunny 1110507030Hamida Kaus Prianka 1110517030

Executive SummaryFood and beverage industry is one of the fastest growing industries around the world as food is

humans’ most basic necessity. Though this industry is growing on a moderate level in US, it is

the largest industry in Europe. There is high competition in this industry. Though most

companies in this sector are SMEs, a few large companies are contributing by doing merger and

acquisition, vertical integration and expending into overseas market to increase their

sustainability and efficiency. The large companies in this sector are- Nestlé, Kraft Foods,

Unilever and Cargill. Alongside US and EU, emerging economy for food and beverage industry is

China and India. They mainly provide the raw materials for this industry. Any Economic

downfall may highly affect all other industry but food and beverage as it provides necessity

product which people need to use even in heavy economic downfall. Being one of the fastest

growing industries, this sector faces some issues such as technological development. Due to

increasing completion the R&D of this industry should be well maintained which can be

challenging to bring out new technologies to make the products sustainable and efficient.

Manufacturers are expending their market to developing countries such as China and Indian

because of relaxed rules, large population, higher living standard and higher growth potentials.

Food and beverage industry in Bangladesh is a potential sector and growing rapidly since 2000.

This industry alone makes up 22% of the total manufacturing production in the country and

around 2.45% of the country’s total labor force. Bangladesh being an agricultural country with

large population can contribute largely in the food and beverage industry. Bangladesh is also

impacting global market by exporting food and beverage to 90 different countries in the world.

But many issues in Bangladesh are holding back this industry, such as unstable political

situation, high barrier to entry, corruption in the controlling quality and lack of technological

development. In the context of Bangladesh, food and beverage industry is one booming

industry to invest in. With the emergence of super shops concept and new technologies now

many large companies are investing in this sector and exploring its potential. Thus this

economic crisis immune industry has become one of the stable and sustainable industries in

Bangladesh.

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Table of Content

Introduction…………………………………………………………………………………….4

Global Industry Structure………………………………………………………………………5

Global Industry Issues…………………………………………………………………………8

Bangladesh in Global Context

Analysis and Conclusion

References

Research Method

Formal thank you letter……………………………………………………………………….18

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IntroductionFood and beverage industry includes harvesting, packaging, distributing, processing of

consumer products over different regions. The industry is growing at a moderate level in United

States because of which the companies are restructuring and realigning their activities to

reduce cost, increase volume and improve profits. Furthermore, large companies are merging

different companies varying in size to gain higher market share and widen the product line they

hold. On the other hand the non-soft drink companies are seeing growth whereas the soft drink

industry is not seeing as much. Due to the high competition companies are expanding into

overseas market to grab more market share therefore increasing competition in different

regions of the world (TB Woods Incorporated Headquarters, n.d.). In the EU food and beverage

industry is the largest industry there, with an estimated production value of 720 billion euros,

this industry accounts for 13% of the total value of manufacturing. The industry employs more

than 4.4 million people and transforms 70% of the agricultural raw materials produced in EU. In

EU the industry is highly fragmented with 99.1% of the total industry run by SMEs employing

2.7 million people. The industry is made up of many subsectors and uses different production

process and packaging techniques. Since it is dependent on various different techniques it is

highly dependent on the R&D sector since it helps improve the product and process to make

the companies more efficient. Although the industry is highly concentrated with SMEs , there

are a few large multinational producer who have a significant impact on the international

market. These companies also participate in vertical integration to help increase the range of

products they can supply and increase their market. The large companies concentrate on the

global market and the SMEs focus on meeting the local demands and specialize in different

subsectors (European Commission, 2005). In terms of Bangladeshi market the industry is

growing at a fast rate with many small companies fighting for a position in the food and

beverage sector however, the market is mostly controlled by large corporation who enjoy

economies of scales and supply a wide variety of products to the consumers. The top

contenders in the industry are Transcom Beverage ltd, Akij Food and Beverage and Partex

Beverage ltd (Businesshabit.com, 2014).

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Global Industry Structure The global food and beverage sector is valued $5.7 trillion USD in 2008. The industry is the

major contributor for growth in many economies and has been historically experiencing a

consistent growth. It has been estimated that the industry will grow at 3.5% and by the year

2014 the industry will be valued at $7 trillion USD. In terms of structure the industry is highly

fragmented with the key player- Nestlé, Kraft Foods, Unilever and Cargill who hold less than 5%

of the total value (IMAP, 2010).

As discussed before Europe holds the largest market share when it comes to food and beverage

items, it generates revenue of $1.4 trillion in the year 2007 while employing 4 million people.

The next key playing country is USA which has a contribution of $1 trillion USD. Although these

countries are the key players however, emerging economies such as India and China are also

contributing in the industry. The emerging economies provide raw materials to the food and

beverage industry thus having substantial impact of the production of food and beverage. The

food and beverage industry in India is valued to be $182 billion in 2007-2008 and the food

processing sector to be valued at $72 billion in 2008. In China is industry is growing at 13.6%

where the industry value was $50 billion in 2008. Below are some of the key players:

Company

name

Key brands Market

covered

Geographic coverage Revenue Operating

profit

Nestlé Nescafe,

Maggi, Milo,

Kitkat, Gloria,

Nestlé, Power

Bar

Products are sold

in 120 countries

across the world

Americas: 30.15%;

Europe: 25.62%; Asia,

Oceania, and Africa:

15.59%; Rest of the

world: 32.45%.

$101.8

billion

USD

$13.8

billion USD

ARCHER-

DANIELS

MIDLAND

Monarch,

Novatol,

Bionature, etc

US, Caribbean,

Canada, Europe,

Middle east

US: 51.27%, Germany:

10.74%, Other Foreign:

37.99%

$69.2

billion

USD

$2.7 billion

USD

UNILEVER

NV

Lipton, Knorr Mainly Europe

and Asia

Asia & Africa: 35.71%,

Americas: 32.57%,

$59.6 $8.5 billion

5

Europe: 31.72% billion

USD

USD

KRAFT

FOODS INC

Easy Cheese,

Pepito, Toasted

Chips,

Toblerone,

Twist, Splendid

North America,

Europe, and Asia

US: 50.80%, Europe:

31.13%, Other: 18.07%

$42.2

billion

USD

$4.9 billion

USD

Source: (IMAP, 2010)

The industry went through it downs due to the problems such as increased food prices,

decreasing in consumer spending, increased transportation cost. Although such adversities

have affected many industries highly however, the food and beverage industry is relatively not

as affected. The reason behind this could be the fact that food is a basic necessity of the people

and regardless of how bad the economy is performing people need to use these products.

According to the figure beside the Dow

Jones food and beverage index has been

performing better than the S&P 500

index, which proves the point that

although other industries have suffered

greatly due to the slowdown in the

economy however, the food and

beverage industry has performed

relatively better.

Source: (IMAP, 2010)

Mergers and acquisitions are very popular in this industry due to the level of competition. As

discussed earlier many companies merge and go into acquisition to help increase the overall

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market share and increase the number of product under their product line. The summary of

transaction in the food and beverage industry based on sector and country is given below.

Summary of transaction in the food and beverage industry in 2009

Source: (IMAP, 2010)

As it can be seen the paged food and meats are industries that hold the highest number of

mergers and acquisitions furthermore their value is also the highest. Since that is the case it can

be deduced that the packaged food and meats industry is facing through fierce competition and

to survive the condition many companies have opted for mergers and acquisition.

In terms of opportunities in various

regions of the world the figure shows

that China shows the highest promise

followed by India.

Source: (Linklaters, 2013)

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Global Industry IssuesThe food and beverage industry is overall growing due to the growth in population however

there are some global industry issues that all the companies are facing, below are some of the

issues:

1.1 Technological Development

Majority of the players in the industry believe that although there is big movements in the

industry towards sustainability and resource efficiency however, most companies still focus on

improving the quality and creating new products. Due to the type of focus most manufacturers

do not prioritize health and wellness issues therefore not focusing on the development on such

technologies. The trend shows that the core of the development in technology still is profit

focused and companies want to mainly improve efficiency rather than focus on sustainability.

According to the same survey the companies are more focused on product innovation rather

than greener technologies, although that is the case however many companies are actually

moving towards that direction. The food and beverage industry is highly dependent on the

technological advancement due to the need to mass production therefore more development is

made to help produce at a large scale at a lower cost (Leatherheadfood.com, 2012).

1.2 Government and Regulatory Issues

Food safety regulations apply to each stage of food and beverage production, from processing

and manufacture to distribution. The laws mostly focus on the safety of the products that are

being produced and quality of distribution around the industry. The industry is also subject to

laws which bound the companies to properly label the products and maintain minimum food

safety standards. Laws such as the Nutrition Labeling and Education Act of 1990 (NLEA) and the

Food Safety Modernization Act of 2010 (FSMA) work towards making the industry more safe for

the consumers. In USA there are many agencies that control the quality of production for the

food and beverage industry for example Food and Drug Administration (FDA) Federal Trade

Commission (FTC) are some of the agencies that work for the government to help maintain the

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basic regulation in the industry. Alongside these agencies there are many other local agencies

which help in the regulation of SMEs thus helping the government regulate the industry

properly (Hg.org, 2015). Similar to the FDA Bangladesh has a regulatory body called BSTI which

oversees and regulates all the food and beverage industry’s products thus keeping the products

safe for the consumers.

1.3 Strategic reaction to competitive pressure

The food and beverage industry is constantly under pressure due to the increased competition

from both local and international competitors, in order to survive the constant pressure the

companies could follow the following strategies:

Deliver products with more nutritional value and fewer allergens: Since more consumers

are being interested in eating healthy the added factor will help bring competitive

advantage. Many companies have already started acting on this by producing whole

grain products to attract the consumers (Infor, 2012).

Continually drive down costs: As discussed before the only way food and beverage

companies can survive properly is through cost cutting and increasing efficiency. This

can be done by utilizing various technologies that are currently available. Many

companies utilize these technologies and make the production system completely

automated to help reduce labor costs greatly thus gain competitive advantage against

the competitors (Infor, 2012).

Minimize environmental impact: large companies are currently focusing on this because

they have figured that by reducing the impact on the environment not only do they gain

competitive advantage in the eyes of the consumers they can also reduce costs by

reducing the waste. (Infor, 2012)

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1.4 New Market

As discussed before the food and beverage market is growing however, the competition is also

growing thus forcing many companies to go into new markets to sustain. Due to the large

economic growth in the emerging economies many food and beverage companies are targeting

these countries. Furthermore, the rules and regulations in these countries are also a lot more

relaxed compared to the countries these companies originate from. Due to the relaxed rules

the companies can be more flexible hence attracting them to those countries. Global food

manufacturer respondents consider China, India and Brazil to offer the largest growth potential

among emerging markets in 2013-2014. According to a survey US, Singapore, Taiwan and Hong

Kong and South Korea offer the highest growth potential among developed countries in 2013-

2014. The companies are under constant pressure due to decreasing margins and consumer

price sensitivity, these problems can be overcome through going into economies such as China,

India and Russia. Furthermore countries such as China and India have world’s largest population

thus making them very lucrative markets to enter. There are many consumers who are now

able to purchase the products due to increased standard of living hence many manufacturer are

targeting such companies (Prnewswire.com, 2013).

Bangladesh in Global ContextBangladesh possesses a very large and rapidly growing food and beverages industry which

stands as a major potential sector of the economy in terms of employment, and value addition.

In fact, the food and beverages industry of Bangladesh makes up about 22% of the total

manufacturing production in the country, and employs around 20% of the industrial

manufacturing labor force, and around 2.45% of the country’s total labor force. It is a 4.5 billion

dollar industry which has around approximately 700 food manufacturing and processing

businesses. The major sub-sectors in the food industry consist of rice, wheat, fruits and

vegetables, tea, sugar, dairy, and edible oils. Being a country with one of the largest populations

in the world, and with the population base growing ever more rapidly, the demand for food and

beverages is always rising. Moreover, due to factors such as the growth in the economy and

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rising incomes, demand is being shifted away from traditional foods and more towards high

value foods. (Kundu, 2015). The food and beverages industry was initially very small and

limited to a few domestic and family businesses which emphasized on basic agricultural

commodities. The industry did not gain significance in terms of operation until the 1980s. Since

the early 2000s the food processing industry of Bangladesh grew at a rate of 7.7% annually and

the range of variety of food products in Bangladesh increased drastically since the last decade

due to the entrance of a number of both domestic and international food companies into the

industry. (Md. Khairul Akter, 2015)

Moreover, the geographical agrarian setting Bangladesh is situated on, and its strategic

location, is very beneficial to the agricultural production. (Md. Khairul Akter, 2015) Agriculture

contributes greatly to the food industry of Bangladesh. As of the 2012 – 2015 Bangladesh’s

export policy, the agro sector remains one of the top most priorities. Out of the total Gross

Domestic Product, 32% of it is made up by the agro foods and beverages industry. (Md. Khairul

Akter, 2015)

However, even with all this crop produced, constraints such as population pressures continue

to make it hard for farmers to meet demand and therefore lead to food deficits and losses. For

instance, the Bangladesh Sugar and Food Industries Corporation BSFIC has recently incurred a

loss of TK 5.3billion last year alone. These food deficit gaps are met and matched by commercial

imports from other countries.

The Bangladeshi food and beverages industry plays an important role in both the domestic and

the global market. The impact globally can be noticed through the increased exports of agro

foods from Bangladesh to countries around the world. Although the agricultural sector of the

food industry is falling, the country has great prospect if and when viewed as an industry which

exports food. Moreover, when it comes to labor intensive agricultural manufacturing and

processing and production of horticultural goods, Bangladesh has a comparative advantage

over other countries. The Bangladesh Agro-Processors Association has been focusing on

manufacturing, processing, and exporting approximately 90 different products to around 70

different countries. Moreover, the country is aiming to increase its GDP through the food and

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beverages industry by exporting certain agro foods. For instance, the fertility of Bangladesh is

suitable for growing maize and corn which is in turn is exported to maize/corn consuming

countries such as Egypt and Nigeria (Agro processed‐ industry in Bangladesh, n.d.).

The figure below shows the market share of various industries in Bangladesh in 2001-2002.

Since the Bangladesh food and beverage industry is growing fast it can be assumed that the

market has expanded however, the overall structure to some extent has remained same.

Source: (MINISTRY OF FOREIGN AFFAIRS OF DENMARK, 2009)

Below the key player in the Bangladesh food and beverage industry is discussed

Company ProductsTranscom Beverage Limited Pepsi range of beverages-Pepsi, 7up, Mirinda

Orange, Mirinda Lemon, Slice and Soda.Global Beverage Co. Shark Energy Drinks, Zam Zam Cola, Appy FizzGlobe Soft Drink Ltd. & AST Beverage Ltd. Royal Tiger, Uro Cola, Uro Orange, Uro Lemon,

Fizz UpPran Beverage Maxx Cola, Cloudy Lemon, Clear Lime. Power

DrinkPartex Beverage RC Cola, RC Orange, Upper 10, RC Lemon,

MUM Mineral Water, Danish Condensed MilkAkij food and beverage Mojo, Lemu, Clemon, Speed, Frutik Source: (Bangladeshtrades.com, n.d.)

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Strategic issues in Bangladesh Bangladesh frequently faces political crisis which hinders the daily business activities thus

affecting the industries adversely. The food and beverage industry faces problems in delivering

the products on time thus lose sales. Furthermore since all these products have strict expire

date many products are not sold before date due to the low sales during political crisis. This

overall creates a disadvantage for the food and beverage company in Bangladesh

The barriers to entry while entering this industry is relatively high due to the large initial

investment required. Most of the companies have fully automated production system therefore

making it difficult for new entrants to produce at the same scale as the major competitors and

sustain in the market. Furthermore, the major competitors have already gained large market

share and brand loyalty which makes it harder for new companies to enter the market and sell

their products.

Although this factor has helped the food and beverage industry however, it has also affected

the industry adversely. The regulatory body for controlling the quality of the product sold in the

food and beverage industry is not as efficient therefore hampering the controlling activities for

the corporation. On the other hand the officers in the regulatory body are rather corrupt thus

making it easier for many companies to bribe them and get unsafe products into the market.

This means more products are in the market however, the consumers lose confidence in the

products since they believe that the quality is not maintained. Due to the heavy level of

corruption many companies face difficulty in getting safe products out into the market without

having to bribe the officers, thus creating an issue for the industry.

Analysis and ConclusionFood and beverage industry is the source of growth for many countries, an example of such a

continent would be Europe. The same strategy could be used by Bangladesh to stimulate

growth in the economy. Since there is a large industry dedicated to the agricultural sector in

Bangladesh, it would be rather easy to move into food and beverage industry for many

corporations. The raw materials are available and cheap therefore making it a lucrative industry

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to enter. There is a large dairy, fruits and vegetable and fisheries industry in Bangladesh and not

many companies are there to take the market. As discussed before there is a growing demand

for fruits and vegetable products therefore corporation could fixate on that industry. Abroad

many companies make profitable business out of producing packaged fruits and vegetable,

Bangladesh could go into a similar movement and expand the horizon of food and beverage

industry.

The food and beverage industry in Bangladesh is a lucrative market since the competition is not

as fierce as it is in the global market due to the lack of competitors. Furthermore, the range of

products produced in Bangladesh is also less therefore creating a gap in the industry. There are

many small companies producing variety of products however, due to lack of technological

development the companies are not being able to be the most efficient. If more research and

development could be done to improve the efficiency of producers in Bangladesh the market

would become more competitive thus forcing corporations to become even more efficient.

Previously there were not many super shops in Bangladesh therefore most food and beverage

items were brought from local vendor, now due to development in the super shop industry

many super shops invest in making their own label which attracts the consumers more. The

trend of generic food and beverage items has reduced greatly due to the influence of the super

shops and is thought to change more in the future years. Furthermore, these super shops also

have similar products from different food and beverage companies alongside their products

which is allowing the consumers to compare and choose what they like best thus inevitably

increasing competition.

In the beginning most food and beverage items were imported from various countries;

products such as Ketchup, dairy items, bakery items and fruits and vegetables were not as

widely produced in Bangladesh. Due to recent development many local companies such as Pran

and BD Food are producing the same standard items in the local market at a much cheaper

cost. This is lead to a new movement in the food and beverage industry which is to bring

positive changes in the Bangladesh economy. Furthermore due to recent R&D many new types

of fruits and vegetables are being produced in Bangladesh for example strawberry and dragon

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fruit are now widely available. If similar type of research is done more variety of products can

be produced in the country thus reducing the need to import the products.

In conclusion the food and beverage industry seems to be an a highly profitable and stable

industry. Although it is dominated by few multinational there is scope for development by the

SMEs. Food is a basic necessity of every human being hence making it an inelastic product for

all consumers therefore it is clear that this industry is not bound to become extinct rather grow.

Also as discussed earlier the food and beverage industry is immune to the economic crisis thus

making it a rather interesting industry to work with. The government and the local authority

has been trying to protect the SMEs for a very long time, this is to initiate healthy competition

as well as create scope for development. In Europe the SME food and beverage industry is

highly protected by the government and often given subsidies to help them sustain. A similar

approach could be taken by the Bangladeshi government to stimulate the growth in the food

and beverage industry. Overall the industry seems to be booming not only because it is an

inelastic product but also because of the growing population therefore more investment should

be done in this industry by more corporations in Bangladesh. Since the population is growing

the opportunity seems to be the best one to grab in Bangladeshi context.

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References

Agro‐processed industry in Bangladesh. (n.d.). 1st ed. [ebook] Dhaka. Available at: http://www.hortex.org/Employment%20and%20GDP_Agro-processed_171113.pdf [Accessed 10 Jul. 2015].

Bangladeshtrades.com, (n.d.). Bangladesh Beverage Industry | Bangladesh beverage company list. [online] Available at: http://www.bangladeshtrades.com/bd-company-list/bangladesh-beverage-company-list.html [Accessed 9 Jul. 2015].

Businesshabit.com, (2014). Top 10 beverage companies in Bangladesh. [online] Available at: http://www.businesshabit.com/2014/12/top-10-beverage-company-in-bangladesh.html [Accessed 9 Jul. 2015].

European Commission, (2005). ICT and electronic business in the Food and Beverage industry. [online] Available at: http://ec.europa.eu/enterprise/archives/e-business-watch/studies/sectors/food/documents/Food_2005_I.pdf [Accessed 9 Jul. 2015].

Hg.org, (2015). Food and Beverages Law - HG.org. [online] Available at: http://www.hg.org/food-and-beverages-law.html [Accessed 9 Jul. 2015].

IMAP, (2010). Food and Beverage Industry Global Report — 2010. [online] Available at: http://www.imap.com/imap/media/resources/IMAP_Food__Beverage_Report_WEB_AD6498A02CAF4.pdf [Accessed 9 Jul. 2015].

Infor, (2012). White Paper How food & beverage companies gain competitive advantage. [online] New York. Available at: http://www.infor.com/content/whitepapers/howfoodandbevgainadvantage.pdf/ [Accessed 9 Jul. 2015].

Kundu, S. (2015). Wheel :: Business Magazine. [online] Wheel.com.bd. Available at: http://www.wheel.com.bd/cover_story.php?id=26 [Accessed 10 Jul. 2015].

Leatherheadfood.com, (2012). Emerging technology in the food and beverage industry | Leatherhead. [online] Available at: https://www.leatherheadfood.com/emerging-technology-in-the-food-and-beverage-industry [Accessed 9 Jul. 2015].

Linklaters, (2013). Food and beverage. The Linklaters Emerging Opportunity Index. London.

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Md. Khairul Akter, M. (2015). Sector profile and strategic planning for the agro-base food industry of Bangladesh. [online] Bangladesh Textile Today. Available at: http://www.textiletoday.com.bd/newsite/sector-profile-and-strategic-planning-for-the-agro-base-food-industry-of-bangladesh/ [Accessed 10 Jul. 2015].

MINISTRY OF FOREIGN AFFAIRS OF DENMARK, (2009). FOOD PROCESSING IN BANGLADESH.

Prnewswire.com, (2013). Global Food and Beverage Survey 2013-2014 - Market Trends, Buyer Spend and Procurement Strategies in the Global Food and Beverage Industry. [online] Available at: http://www.prnewswire.com/news-releases/global-food-and-beverage-survey-2013-2014---market-trends-buyer-spend-and-procurement-strategies-in-the-global-food-and-beverage-industry-218839341.html [Accessed 9 Jul. 2015].

TB Woods Incorporated Headquarters, (n.d.). An Introduction to Food and Beverage Industry. Pennsylvania, p.1.

Research MethodThe report “Strategy and Structure of the Food and Beverage Industry” is based on both

secondary research and primary research. The information was collected from various online

resources in different journals and articles. The primary data was collected through an interview

session with an employee from Partex Star Group. He helped us give more insight about the

local market and help give us suggestion. The referencing format for the whole document was

Harvard referencing style.

Limitation of this research is that there was a lack of data in the local market and most data was

outdated. Therefore, most of the information connecting to the recent years is based on the

estimations provided in the secondary sources.

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Formal Thank You letter02-07-15

Dear,

Mr. Kazi Abul Hassan

Thank you for meeting with us last Thrusday morning for discussing the topic regarding food

and beverage industry. It was both enjoyable and informative. Your insightful presentation

contained several innovative ideas that we are now considering for our report writing.

To make a dynamic report it was very important for us to gather the latest and specific

information regarding the food and beverage industry. We got some information from the

secondary sources, but it was not the most fruitful one. Finally, it was our pleasure to meet you.

We have learned a lot regarding the food and beverage industry such as the present market

scenario, how they adapt themselves to the customer’s need, want and demand, their limitations

and most importantly their impact on global and domestic economic trend. Apart from this, we

have also learned some practical knowledge which will be very much useful in our near future.

Once again, thank you for taking the time to meet with us. We hope that you feel as good about

our interview as we do. We look forward to hearing from you, and We hope to be working with

you and your co-operation soon.

Sincerely,

On behalf of managers group

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