Tesco is poised to break away from its national pricing policy by sanctioning price rises at a store in Shetland, with the supermarket reportedly claiming this was "in order to protect local traders".

Lerwick Community Council said that at a meeting on 28 April, Tesco corporate affairs managers Douglas Wilson and Craig Harrow indicated the chain could absorb the additional costs of transporting goods to the islands, but charging the same prices as elsewhere in the UK would undermine local businesses.

A council report of the meeting said: "It was explained that Tesco's buying power, along with its ability to absorb extra costs, did not make it a level playing field for other retailers." Tesco made it clear that if it implemented its UK pricing policy, customers would notice "a dramatic drop in prices, even on named brands". "Although consumers would win, this would have a detrimental effect on smaller local businesses as well as the Co-op. Local suppliers would also be at a disadvantage as they would be unable to compete," the report added.

The council was told that a final decision on pricing would be taken at a monthly meeting of the supermarket's UK trading group.

But a Tesco spokesman told The Grocer there had been no movement yet on the issue, adding: "There are a number of factors that need to be addressed."

Tesco acquired the 20,000 sq ft Lerwick store from Somerfield and submitted plans last month to increase the sales area by another 10,000 sq ft. The spokesman denied that its pricing policies on the island might be influenced by planning issues.

The Lerwick supermarket is one of six Scottish stores bought from Somerfield in March, the others being in Kirkwall, Stornaway, Ullapool, Aberdeen and Paisley. An objection has been lodged over Tesco's plans to extend its Stornaway store by 7,000 sq ft to 30,000 sq ft.