IGD: Robotics and AI investment crucial to offset rising UK food prices and labor costs

As US trade tariffs, retaliatory measures, geopolitical tension, and climate change enhance global inflation risks, a new report by the Institute of Grocery Distribution (IGD) forecasts that food prices will rise 3.4% in UK retail and 5.2% in the Away From Home (AFH) sector this year. This spike will be a culmination of increasing labor costs, driven by the government’s autumn budget measures. 

AFH is defined as food and drink sales in full-service and quick-service restaurants, traditional pubs and bars, accommodation, leisure, workplace catering, healthcare, education, and services.

The study emphasizes the growing role of automation and policy in shaping how businesses respond to changing consumer behaviors and rising prices.

“Consumers are likely to reduce the frequency in which they eat out, in particular within casual dining. Either sides of the value spectrum are likely to be slightly more protected, with increases on lower value items more palatable by consumers and premium restaurant consumers willing to continue to pay for the overall experience of going out,” James Walton, chief economist at IGD, tells Food Ingredients First.

Beyond frequency, consumers are also adopting a “more casual” style of dining. There is more to this shift than meets the eye.

“Instead of feeling obligated to order a full two or three-course meal, many people prefer to socialize over small plates or shareable dishes, allowing them greater control over their spending per outing,” explains Walton.

Autumn budget triggers costs

April is a crucial month for consumers and businesses in the UK as the higher National Living Wage comes into effect. Moreover, according to IGD, changes to employer National Insurance Contributions have also spiked labor costs, especially for part-time and lower-wage roles.

IGD predicts that profits are thin and there is “no room” to absorb these cost increases, which will likely be passed on to the consumer.

The report notes that over eight in ten consumers expect rising prices for food, grocery, and dining out. Some kitchen staples have become costlier in the UK as food inflation has increased to its highest level in 11 months, according to the British Retail Consortium’s April Shop Price Index.

Amid these pressures, IGD spotlights F&B retailers turning to AI and robotics to boost productivity, reduce costs, and cope with rising labor expenses as staffing challenges continue.

For example, the organization expects electronic shelf edge labels (ESL) to become widely adopted this year. ESLs help save time by helping with restocking, markdowns, and online order picking while enhancing consumer experience. Asia is already seeing robots take on replenishing and cleaning tasks.

But Walton says policy stability is key for tech adoption. “It’s important that industry has the right policy framework and confidence to invest.”

Will robots replace humans?

There are growing concerns over robots potentially replacing humans, especially those in low-skilled jobs. However, Walton says automation has “numerous benefits” to offer to the F&B industry, including “increased efficiencies and the opportunity for workers to focus on more value-adding activities.”

“By automating repetitive and physically demanding tasks, workers can avoid less desirable conditions such as cold, wet chillers, and reduce the risk of repetitive stress injuries, trips, and slips. Other opportunities will inevitably open up as new skills and training will be needed.”

He adds that automated ordering in QSRs has been a “win-win technology” that has boosted efficiency without hurting service: “It enables the same choices for users, less chance for error, and increased savings for businesses.”

According to the report, technology is also helping retailers unlock new revenue streams through data monetization, with larger players selling in-house tech solutions to non-competitors.

“Shoppers want their data to be secure and get good value in return for their contributions. It’s all about finding a balance that works for the consumer and following the correct processes,” notes Walton.

The report states that economic risks loom as food pricing is unlikely to decline anytime soon. Future shocks are likely and may be “harder to predict,” driving inflation further. How do businesses respond in the short-term to remain resilient?

“The first thing businesses should do to improve resilience is to map risk and understand where the vulnerabilities are. They can then start to develop scenarios and counters to the risk identified,” Walton concludes.