IGD report urges food industry to boost AI and robotics investment amid rising labor costs; retail food prices projected to rise 3.4% while away-from-home prices increase 5.2% in 2025

April 29, 2025 (Convenience Store) –

The food industry is facing challenges due to surging labour costs and a growing population. Now, in a new report, James Walton , chief economist at the Institute of Grocery Distribution (IGD), emphasises the urgent need for businesses to ramp up investment in tech such as AI and robotics to ensure its survival.

The IGD’s Economic Viewpoint Report, How to Respond to Rising Labour Costs in 2025, released today (29 April) highlights the perfect storm brewing in the food system.

The rise in labour costs, geopolitical risks and inflation are creating a challenging environment for businesses and consumers alike. These factors have all lead to a highly volatile and uncertain environment, impacting consumer and business confidence, as well as affecting operations across the food system.

Key findings from the report include the prediction that retail food prices look set to rise by 3.4% on average, compared to 5.2% for away-from-home (AFH) food prices in 2025 - fuelled by rising labour costs.

April 2025 marks a critical point as measures introduced in last year’s budget, including the higher National Living Wage and changes to employer National Insurance Contributions, have sharply increased labour costs, particularly for part-time and lower-wage roles. With profits already thin, there is no room to absorb these cost increases, and consumers are likely to end up paying more.

It also notes that financial confidence is down sharply, with only 23% expecting to be better off in the next year - the lowest figure since November 2023 , IGD’s research states. Unsurprisingly perhaps, over eight in ten consumers also expect a rise in prices for food, grocery and dining out.

But it goes on to say that retailers are increasingly turning to technology to boost productivity, tackle staffing gaps and cope with rising labour expenses.

Michael Freedman , head of economic and consumer insight, summarised the findings: “The [report] highlights the multi-faceted challenges facing the food industry, from rising labour costs and geopolitical risks to inflation and dipping business and consumer confidence. It underscores the need for strategic resilience, innovation and collaboration across the food system.”

Drilling down into the figures, the report states that the food industry has seen nearly 200,000 fewer people working in food manufacturing since 1980, with the number dropping from 613,750 in 1980 to 415,750 in 2024, according to data from the Office for National Statistics (ONS).

However, despite a population increase of 13 million people in the UK during this period, food manufacturing has become more labour-efficient, with each worker now serving 167 people compared to just 91 in 1980, the same ONS data says. Yet this ‘quiet evolution’ has largely gone unnoticed, it adds.

“The food industry faces two significant challenges - dealing with rising labour costs and the need to feed more people.”

With more growth expected from the UK population, the report notes that the food industry faces two significant challenges - dealing with rising labour costs and the need to feed more people.

The report continues by saying that despite the challenges above, there are opportunities for the entire food industry to adapt. In retail, these advancements are reshaping efficiency and setting new benchmarks. Beyond daily tasks, technology is transforming inventory management, reducing theft and unlocking revenue. In a rapidly evolving market, technology provides retailers with the edge they need to adapt and succeed.

Toby Pickard , retail futures senior partner, emphasises the urgent need for food businesses to build a better system through automation and innovation. “The food industry is at a critical juncture. By leveraging technology and innovative solutions we can transform the sector, ensuring sustainability and growth. It’s not just about reducing headcount - it’s about creating a resilient and efficient food system that can weather these challenges and emerge stronger.”

To download the report in full, visit the IGD website.