Knightsbridge Fine Wines, Inc. (KFWI)
Interview with:
Jake Shapiro, Chairman and CEO
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and Information on their
vineyards in each of the great wine growing regions of the world.

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A strong management and superior sales team are giving Knightsbridge Fine Wines acquisitions an edge in the marketplace

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Consumer Products - Wine

Knightsbridge Fine Wines, Inc.

65 Shrewburg Rd.
Livingston, NJ  07039
Phone: 973-597-1971

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Jake Shapiro
Chairman and Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor
April 2004

Jake Shapiro – Chairman of the Board, President and CEO

Jake Shapiro is the CEO of Knightsbridge Fine Wines, an internationally based wine producer and distributor. He has reviewed or visited almost 100 wineries in 4 continents in his quest to build the world’s best wine company. He is charged with developing, sourcing and negotiating acquisitions and strategic partnerships for Knightsbridge. He also guides corporate strategy, ensuring that the firm stays on-track to meet its long-term goals. Prior to joining Knightsbridge, Mr. Shapiro was President of JS Capital LLC, an east coast based finance boutique specializing in mergers & acquisitions, and public corporate finance. Since its founding, JS Capital has been engaged in and has financed a variety of industry non-specific companies including software production firms in Pakistan, fiber optic systems in Mexico, and five star European hotel owners and operators. JS Capital has built a strong presence in both apparel and mass media sectors, and maintains a number of Hollywood celebrity clients. Mr. Shapiro began his finance career in 1992 working in the back offices of the investment banking firm of M.H. Meyerson & Company. While attending night school at the Rutgers University Graduate School of Business for his MBA, Mr. Shapiro quickly rose the ranks from working in the operations division of M.H. Meyerson to becoming one of the youngest senior traders, where he executed institutional orders on behalf of Wall Street's biggest firms, including Goldman Sachs, Merrill Lynch, and Credit Suisse First Boston. Mr. Shapiro attended Rutgers University, where he completed his studies in three years and received departmental and collegiate honors.

Company Profile:
Knightsbridge Fine Wines, Inc. (KFWI-OTC) was founded in the fall of 2002 to realize a vision of creating a diversified international wine company consisting of estate vineyards in each of the great wine growing regions of the world. As a foundation for the exciting growth being projected, the company is firmly built upon the estate wineries of Dominion Wines in Australia, Bodegas Anguinan in La Rioja, Argentina, and, in California, Kirkland Ranch Winery (Napa Valley), and Stonegate Wines (Napa Valley). By combining these international properties with an overlay of a management team that has many previous successes in the wine industry, Knightsbridge believes that it is well situated to grow into one of the industries best known global brands.

Knightsbridge Fine Wines is based upon a philosophy of applying consumer beverage marketing principles to the production and distribution of premium brands. This elementary concept has been proven in virtually every industry, including spirits and liquors, yet is virtually unutilized in the wine world. In the consumer beverages industry, both alcoholic and non-alcoholic, the largest and most profitable consumers all share a very identifiable theme: the commitment to brand identity and brand integrity. Management of Knightsbridge Fine Wines is drawing upon proven marketing concepts, and applying them to both the mass markets and the premium award winning wine segments.

CEOCFOinterviews: Mr. Shapiro, how did you become interested in this area?

Mr. Shapiro: “I have been a fan of wine for many years and started my career as an investment banker and was presented with a small European wine company for sale. Initially I wasn’t very excited about it because it was a very small business, but upon due diligence, I found many people in the wine industry had tremendous emotional reactions when you mentioned certain brands. I got very excited by seeing the emotional reactions that people had to specific brands of the wine industry. That led me to do homework on the industry and realize that there are several critical difficulties that most wineries face, that would make it hard for them to succeed. However, as part of a global wine country, they would have a much greater chance to become a very important player within the wine industry. I built a business plan and based on my hypothesis, I was met with a tremendous response from winery owners in the four different continents.”

CEOCFOinterviews: What do you want to do?

Mr. Shapiro: “We are set up to build a truly global wine company with a state winery in every great wine-growing region of the world. There are few to no global brands that exist right now, whether you want a Shiraz from Australia, a Cabernet from California, a Sauvignon Blanc from New Zealand, or a Chianti from Tuscany, they can buy the brand that represents the best from the best, at that particular wine-growing region from the world. We are set to build a truly diversified global wine company that represents the best from the best.”

CEOCFOinterviews: What do you realize about doing this that hasn’t been thought of before?

Mr. Shapiro: “Many wineries are set up as family businesses and one of the biggest challenges of winery owners is that they were very successful in different businesses such as construction or real estate and companies, and owning a winery is the ultimate statement of success in the world. What happens is there are people who have been successful in other businesses, but they have no knowledge of how to develop a consumer brand, how to market wide and sell wide. We have built the ‘dream team’ of sales and marketing; we have hired the best of the best from all of the great wine countries in the world to build a sales and marketing organization, that has an average of 15 to 20 years experience in the industry.”

CEOCFOinterviews: When you buy a winery, what is it that you are looking for?

Mr. Shapiro: “The type of winery we look to acquire should have a healthy balance sheet and there has to be tremendous quality within the bottle. It takes five to seven years to make a bottle of wine, so we are not going to look at properties with poor quality. We do the hard part; we know how to move and sell the products, that is where we specialize. We find these estate wineries with great products that don’t know how to sell them, and we allow the owner stay involved in the production and operation side, which is where they excel, and we come and do the ‘heavy lifting’ which is selling the inventory and creating the brand.  When we come in, we are warmly embraced as the saviors of the wineries because they didn’t know how to compete in the global marketplace. It is extremely expensive for any single winery or boutique brand, to have a national or international sales force. We have about eighteen fulltime sales and marketing people in the United States alone, and we have sales departments in 45 countries in the foreign market. It is such a large distribution that we have built, that it would be cost prohibitive for any individual winery to do on their own, and without it they aren’t going to get any sales to the end consumer.”

CEOCFOinterviews: Where are some of the current locations of your wineries?

Mr. Shapiro: “Right now, we are producing wine at our estate winery in the Andes Mountains in La Rioja Argentina; the name is Bodegas Anguinan, it is a one hundred-year-old winery whose manager is a former ambassador to the U.N. and former Chief of Staff of Argentina. We are producing wine in the Napa Valley at Kirkland Ranch, which is a ranch of 2,900 acres right in the heart of Napa. We are producing wines at Dominion Wines International in Australia. We are now producing wines at our subsidiary, Bodegas Torrique S.L., which is located in Castilla la Mancha, fifteen miles outside of Madrid and we are opening up the required facilities in other wine growing regions of Spain. We are currently looking at other wineries and producers in Champagne, Tuscany, Bordeaux, and Germany, so we have a full-fledged global portfolio.”

CEOCFOinterviews: How and where is the wine distributed?

Mr. Shapiro: “In America, there is a three-tier system; Knightsbridge is the manufacturer and producer of the wines and we sell to approximately 150 distributors here in the United States. Those distributors then sell to the various retail chains, wine shops and restaurants. We have two sets of clientele; our first set is to distributors, which is who pays Knightsbridge for the wine. If the distributor doesn’t resell that wine, to the end user, Knightsbridge will never get a reorder. We have placed key regional and state sales people in all the top markets, whose job it is to educate the distributors about our brands and to make sure to run special programs to make sure the projected volume is moving that is targeted for any given time, as well as working with retailers and restaurants. We are now shipping to ABC Stores in Florida, which has 220 stores just in one state; we are in Kroger’s, Cost Plus; we are in a lot of national chains. We are also shipping to Europe. We are going to target the national leaders for distribution.

The key elements to get the consumer to pick up your bottle of wine are price, quality and packaging.  I put price and packaging as a form of import. When we produce a Napa Valley wine, it is at the more affordable side of the spectrum; it is either. The retails are at about $18.99 a bottle, which is at the lower end of the price range for Napa, because it is a high quality product. We produce Guy Buffet, which is one of the most famous Bolivian artists alive and each of our wine labels has a specific image for the Cabernet, Merlot, and Chardonnay. It is usually exciting and appealing and it is not just a label, but also a painting on a bottle. It is the image and artist that most wine drinkers recognize.  You have tremendous amount of brand equity that is built in within the brand. We have brands that Knightsbridge allows us to own organically and there are a number of examples like that, which we expecting to launch throughout 2004, utilizing extremely well known household names, celebrities and artists, that combine exciting packaging with tremendous built-in brand equity.”

CEOCFOinterviews: Do you do any advertising that targets the end-user?

Mr. Shapiro: “We do some advertising to the wine enthusiasts and spectators of the world; we primarily target the distributors or hotel or restaurant operators, and the people that will be asked for recommendations.”

CEOCFOinterviews: How do you convince the dealers to give you the shelf space?

Mr. Shapiro: “It is an extremely competitive marketplace; it is a relationship business. To that end our sales team is run by Joseph Carr, Executive Vice President of Sales, who is a former executive vice president of Beringer Blass Wines and former president of Mildara Blass Wines, which is the second or third largest wine company in the world. Our sales team all comes from E. & J. Gallo Winery, Mendazi, the Charmer Sunbelt Group and Brown-Forman Corporation (BFB); the biggest and most successful wine companies in the United States. We combine those relationships with products that are with exciting packaging that catches the eye, priced at the right price point and tastes good to great. We got a phenomenal response back from our distributors because of the amount of marketing research and time that went into the development of these products. It is very difficult to differentiate your wine from someone else’s wine on a wine shelf and we have gone to great lengths to do that and we have gotten much appreciation from the wine retailers.”

CEOCFOinterviews: How active are you with your subsidiaries companies?

Mr. Shapiro: “On the production and quality side, we export to our subsidiaries the ability to purchase; there are tremendous discounts in the wine industry, so we can immediately reduce their cost of goods. We can immediately reduce a lot of the accounting and financial administration overhead, which is all out of our world headquarters in Napa Valley. There is a lot of operational help that we bring to the table from the get-go. The biggest help Knightsbridge gives to the subsidiaries for the companies that we acquire is a dramatic improvement in cash flow. We immediately take their product and stick it into our pipeline and generate national and international distribution for them in a way that they have never seen or dreamed of before. That is the greater value that Knightsbridge has to any winery that it acquires. We also have many award-winning wine makers and one of the beautiful things of the wine industry is that it is easy to appreciate someone else’s product without denigrating your own product, whereas you will never see the chairman of Ford, praised by General Motors. With wine, you appreciate it for the value that it has, so all of our wine makers provide different ideas to get the best final product out of each estate.”

CEOCFOinterviews: You are a relatively new company, will you tell us about the financial condition.

Mr. Shapiro: “We have done several institutional raises, so we are perfectly funded right now. We have very exciting revenues projected for 2004.   We have our full portfolio in-place with our distribution and sales team and marketing team all in-place. Our Current portfolio range is from forty dollars per case wholesale, to over three hundred dollars wholesale for four different continents. We really have diversity, depth, breadth and range. We have very little debt; it is a very asset intensive industry. We feel that there is a tremendous opportunity for the next two years to continue to be a growth company and acquire many of these assets, which poor onto Knightsbridge shareholders. ‘September 11th’ created a lot of turmoil in the wine industry and created a lot of depression and great prices. Now that the economy has rebounded, people have been drinking a lot more wine. There is a trickle-up in the wine industry instead of a trickle-down. That gives us a unique window in time right now to execute these acquisitions on a global basis, whereas two years from now it will be extremely difficult to do the types of deals that Knightsbridge is currently doing.”

CEOCFOinterviews: How many wineries do you look at before you decide on one?

Mr. Shapiro: “At this point, we have reviewed over 140 wineries in four continents. We spend a lot of time interviewing each employee one-by-one to find out everything good and bad about the property. We do tremendous due diligence about the wine, the reputation and trade. It is a lengthy process, which probably takes an average of six to eight months before we will execute on a property.”

CEOCFOinterviews: What do you see as your biggest challenges and how are you ready?

Mr. Shapiro: “Our current challenge is that we think we are going to be sold out of our product very quickly. Because we are a growth company and our sales have grown at exponential rates, it is important and crucial to accurately predict our sales volume month-to-month and quarter-to-quarter. We are different than other industries in that wine is a very time intensive product especially when you are importing wines from around the world; it can be four to eight weeks just to bring in a wine from Australia, then we have to bottle it and let it age before it is released. We need to be predicting at least six months into the future after our sales. We are very nervous right now about selling out of a number of our products and not being able to fill all of our customer orders.”

CEOCFOinterviews: You mentioned that you bottle the wine there; how does that work?

Mr. Shapiro: “One of the things we do as in international company is we take the wine and put it into a container that has a big refrigerator inside, and we ship it in bulk format for our winery in California, who then puts it in the bottle and puts on the label. By doing this, we save four dollars per case in shipping costs because you can fit a lot more wine into a container that you could if you had to package it. It allows us to compete better on price or just as importantly, on margin. Many of the high volume products of the market place are the very low margin products for the retailer. We design our wine to compete or allow a much greater margin for the retailer, and for everything else we can get like shelf space, floor space etc. That is one example that we have of wine going out on a global basis, where we ship wines from Spain, Australia, California, and South America, in bulk format, and then being bottled at that specific winery for that specific continent. We save shipping costs by doing this.”

CEOCFOinterviews: You were recently listed on the Franklin and Berlin exchanges, why is that?

Mr. Shapiro: “Because of our acquisitions strategy in Europe, we thought it would be important to be a European listed company. We currently have a number of products being sold in the European market. Europe is a far more mature wine consumer market than the United States. Given the value that the investment community can associate with our brands in those markets, they still have a tangible product that they are familiar with, that they didn’t buy from the local store, we thought that would be appealing. Another reason is because we are acquiring a number of European properties, we believe that we can facilitate the transactions by being listed on the European exchange as well, so we were not viewed as simply and American company but as a global company as well.”

CEOCFOinterviews: In closing, why should investors be interested now, and what should they know that perhaps they might not realize when they look at your company:

Mr. Shapiro: “Investors should realize that a company that becomes involved with Knightsbridge could dramatically increase their distribution on a global and national basis with the best sales team from the industry. Each member of our senior management in sales and marketing has a long resume of success of brands that they have created from nothing or brands that they have taken over and brought to million-case level sales volume. That is unique within the industry. The time is right now because there is a massive change going on in the wine industry and wineries that are single-brand will not be able to succeed in the future; they will not be able to get retail attention whatsoever due to the crowding of the marketplace. For the single brands that are not acquired by Knightsbridge or someone like us, it is unlikely that they will be in business in three to five years. Knightsbridge provides them a portfolio, platform and foundation to teach them how to correct all the mistakes that they have made, because we have been there and done that. That is why we are an exciting company in the wine industry and the reception that we receive from vineyard owners and distributors on a global basis, is a tremendous validation of our philosophy. We are very excited and we are lucky that we work in very fun industry. It is great to provide a product that enhances people’s lives.”


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