See Table of Contents for Tiburon's Wine Investments Research Report Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its new research report on Wine Investments. This research release summarizes some of the report's key findings. The purpose of this report is to provide readers with an initial understanding of opportunities for investing in the wine market, including vineyards, collections, & futures. In the market for alternative investments, none can be much more fun than investing in the wine industry. As a passion of Tiburon's managing principal, Tiburon is able to address the history of wine making, wine vintages & ratings, core wine varietals, wine growing regions & appellations, and ways of investing in this booming market. This is the third draft of Tiburon’s research on this topic. Tiburon’s first draft of this report was published early in 2008; that draft consolidated prior Tiburon research into one report. Tiburon’s second draft of this report was published later in 2008; that draft aligned the report’s structure with that of other Tiburon research reports and added detail to several winery profiles. This is Tiburon’s third draft of this report. Key Findings This report has a long list of interesting facts to share: Market History Thomas Jefferson and a group of scholars and statesmen led the first effort to build a US wine industry in 1776 The wine industry began maturing in the late 1700s as quality differences began to be noticed and appreciated Phylloxera was inadvertently introduced to France from America in the 1860s Phylloxera destroyed almost every vineyard in France in the late 1800s The emergence of Napa Valley killed the Missouri wine industry in the late 1800s, dropping the state’s share of US wine productions to just 3% by 1899 World War II and Hitler’s order for the destruction of Paris devastated the French wine industry in the 1940s Phylloxera struck the US wine industry in the late 1960s Zinfandel Advocates and Producers (ZAP) was founded in 1991 and gets credit for Zinfandel’s redemption Key Issues At best cellars, for instance, wines are divided into eight basic categories by taste & style rather than region or grape variety There are many tastes in wine and 54 essential wine scents, including raisins, fruit, cherry, grapes, earthy, plums, acidity, dryness, and tannin Red wines range in body from Gamay to Syrah California, as a region, particularly makers of chardonnay and cabernet, have been raising prices without proportional increase in quality California Wineries More than one-half of California’s 2000 vintage record harvest was comprised of five grapes, including Chardonnay, French Colombard, Zinfandel, Cabernet Sauvignon, and Merlot Although new wineries continue to open in Napa Valley, new tasting rooms don’t, as the county no longer issues permits for winery tours and tasting rooms, in an effort to reduce traffic congestion Sonoma valley has a wide variety of plantings stretched out over 12,000 acres planted Other US & Canada Wineries Oregon and Pinot Noir are the center-points for the International Pinot Noir Celebration held every year since 1987 in McMinnville, Oregon on the last full weekend of July Washington State has 170 mostly small wineries, most producing fewer than 5,000 cases annually, from a total of 300 vineyards France, Italy, & Other European Wineries In France, wines are named geographically rather than by varietal The practice of selling wine futures started in France and started with the classified-growth Chateaus Spain is the fourth leading wine producer in Europe In a world of increased standardization, Portugal maintains its individuality, sticking to its indigenous varietals Half of Portugal’s wine exports are its fuzzy rose Australia, New Zealand, South Africa, South America, & Other New World Wineries Australia has some tremendous wines coming out of the island continent which is a huge hot dry country with several pockets of cool wine growing paradises Chile has over 200,000 acres of vineyards, having doubled its acreage since 1995 Just half of Chilean wine exports leave the country in bottles Chile’s wine laws require a wine labeled with a varietal name must include 85% of that varietal Almost three-quarters of Argentina’s wine now comes from the Mendoza province Argentina now has almost a half million acres of vineyards Argentina now produces almost a half billion gallons of wine Varietals California Cabernet Sauvignons are associated with a number of flavors, including black currant, mint, and eucalyptus Grenache, also called Garnacha, is the most widely planted red variety in Southern France and Spain Merlot accounts for 14% of the restaurant market Merlot is extremely popular in California as a varietal, although some of the best American Merlot is actually grown in Washington state Pinot Noir could be the next trendy grape as it yields among the world’s best wines Syrah is known for its berry aromas and produces very full-bodied, concentrated, flavorful wines, especially in France’s northern Rhone Sangiovese has been around in Italy since the time of Etruscans Zinfandel is planted on 52,000 acres in California, up only slightly since 1998 San Joaquin accounts for 40% of California’s Zinfandel acreage Zinfandel was one of the first grapes grown in California, imported during the Gold Rush somewhere between 1852 and 1857 California has 95,000 acres of Chardonnay, up nearly 50% since 2001 Climate, soil, and generations of winemaking experience combine to make Rieslings of tremendous finesse The name Fume Blanc was first applied to California Sauvignon Blanc by the then recently established Robert Mondavi winery in the late 1960s Portugal allocates only a small share of its annual Port production to be bottled as Vintage Port. In fact, only 3% is bottled as Vintage Port By law, only one-third of a shipper’s stock can be sold in any given year, the remaining 67% must remain in inventory Vintages The early 1970s included 1971, in which Sonoma growers experienced 21 consecutive nights below 32 degrees The late 1990s included 1997, which has proven to be one of best years in the decade The early 2000s saw California grape crush up 24% to almost four million tons in 2000 US Market Size & Statistics There are 4,400 grape growers in California Trinchero Family Estates heads up the case volume category with popular brand names like Sutter Home Beringer Blass Wine Estates crushes the competition with more than 10,000 vineyard acres in California Despite producing one million fewer cases than Mondavi, Beringer Blass surpasses Mondavi in revenues About 2,000 of the 2,100 US wineries are small family-owned operations that account for less than 5% of US wine product Sales of California wines have grown at a 12% compound annual rate over the past decade, about twice the growth of the gross domestic product International & Import/Export Markets Wine production in developing countries is led by Argentina with 385 million gallons produced in 2000, Australia with 244 million gallons, South Africa with 238 million gallons, and Chile with 174 million gallons The amount of grapes harvested in Australia is expected to grow from a volume of $1.4 billion to $5 billion in several years time Britain is the leading market for US wine exports, accounting for $143 million in the US’ 2000 wine exports Some Chilean and Australian wine producers have seen annual earnings growth of 15%-20% over the past few years More Italian wine is imported into the US than any other, at 60% of all US wine imports Continued Growth of High-End Wines The fastest growing segment is the upper end, as there has been a 25% growth of annual wine sales costing more than $15 compared to only 7% growth for wines selling for less than $15 Adult per capita spending for premium wines has increased to $81 annually from $16 in 1990 About 20% of US adults consume 88% of the wine, so there is plenty of room for industry growth Emergence of New US Wine Growing Areas Ninety percent of US wine is produced in California 145,000 people work in the wine industry in California In the US, California, Oregon, Washington, and New York are the leading wine states, as they produced 98% combined of the $20 billion of table wine produced and sold in the US in 2001 Over the past decade, Indiana’s winery population has grown from 7 to 27 Reversal of Trends to Chardonnay & Merlot Americans drink mostly Chardonnay in restaurants followed by Cabernet Sauvignon Chardonnay is the most popular California wine but most expensive wine sales are red Streamlining of Distribution Wine distribution is screwy as it depends on state laws, local wholesalers, the various tastes of retailers, and many other factors Industry Consolidation The number of wholesalers has shrunk 75% to 2,828 from 10,900 The five largest liquor wholesalers control 38% of the market, the next five control 13%, and all others control the remaining 49% There is a developing trend of large drinks groups building up wine assets one example includes Allred Domecq bidding for New Zealand’s Montana There has been a flurry of takeover activity in the California wine industry as the industry matures Emerging Multi-Tiered Investment Opportunities Some believe that by transferring a crop from grapes to wine, revenues can increase tenfold To better understand the developments for Wine Investments, executives can purchase Tiburon's An Initial Overview of Opportunities for Investing in the Wine Market: Vineyards, Collections, & Futures research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.