Margaret River winemaker Xanadu Wines is reported to have overhauled strategy in the crucial UK market. The move comes as savage discounting causes issues for bigger rivals such as Southcorp.

Several entry-level labels sold in the UK under the Normans Wines banner have been dropped as focus turns to Normans' premium Encounter Bay, Old Vine and Chaise Clarendon range, its top rung Xanadu labels and mid-tier NextGen range.

Xanadu managing director Andrew Moore said aggressive discounting by major retailers, particularly their demand for costly "buy one, get one free" offers, had made it simply unprofitable to operate in the sub-$4.99 price bracket.

When it acquired Normans from receivers in late 2001, Xanadu forecast it would sell 100,000 cases of Normans labels in the UK annually. That forecast has now been slashed to just 20,000 cases a year.

As a consequence, the company yesterday revised total group sales for 2002-03 down to $17 million, some $2 million lower than previously forecast. Despite this, volumes this year will increase over the 225,000 cases sold in 2001-02.

Moore said Xanadu's premium namesake labels continued to perform strongly in all markets, while UK sales of its recently acquired NextGen range alone were on track to top 160,000 cases this financial year and 200,000 cases in 2004.