Tesco passes on costs as it hikes the price of biggest selling product

Tesco has taken the unprecedented step of raising the price of bananas significantly above its big three rivals during a price war.

This week, Tesco raised the price of bananas – the biggest selling unit in UK supermarkets – to 77p a kilo for loose bananas, which is 10p higher than its big three rivals, Sainsbury's, Morrisons and Asda.

The price hike is significant because it signals that if the world's third biggest retailer feels it has to pass on soaring inflationary costs in its supply chain to customers in the form of higher prices, then other grocers are likely to be taking a substantial hit on their margins for bananas.

The move by Tesco is thought to be the first time during the last decade – industry sources said it had not happened since Asda was acquired by Wal-Mart in 1999 – that one of the big four has broken ranks and raised prices. Typically, when one cuts the price of bananas, their rivals match it almost immediately.

In a statement, Tesco said: "We are committed to offering our customers great value and have a number of different offers running each week, including our fruit and veg pledge which promises to cut prices weekly on favourite fruits and vegetables. Unfortunately, due to costs in the supply chain we do have to occasionally raise the prices of some items."

Asda ratcheted up the pressure at the weekend by running a one-off promotion on Friday, Saturday and Sunday of 50p a kilo for bananas, before moving back to 67p on Monday. In May, Asda reignited banana wars by cutting the price of a kilo of bananas from 77p to 72p, which its three rivals matched.

Bryan Roberts, global research director at Planet Retail, said: "Supermarkets sell more bananas than they do anything else. In terms of units, it is the biggest selling product in the country."

However, NGO Banana Link has praised Tesco's recent efforts at establishing a working group to enhance labour conditions faced by workers in the Costa Rican banana industry. Banana Link co-ordinator Alistair Smith said: "Ten years of price wars between British supermarkets has led to deep cuts in wages and conditions for banana and pineapple workers in developing countries but finally Tesco has said enough is enough."