Bulletin: AI and robotics combat labour cost crunch

AI and robotics to combat labour cost crunch

The latest IGD Economic Viewpoint Report, How to respond to rising labour costs in 2025, highlights a perfect storm brewing in the food system. Rising labour costs, geopolitical risks, and inflation are creating a challenging environment.

The report states that the food industry stands at a crossroads. Embracing automation, AI and robotics is not just a luxury but a necessity for the future.

The report explores rising labour costs and their impact on retail and Away From Home food and drink inflation, plus economic, consumer and policy insights.

Download the FREE report.

Increased Away From Home inflation

IGD forecasts annual inflation for the Away From Home (AFH) market to reach 5.2%, up from our June 2024 projection of 4.0%. The impact of these costs varies across different sectors of the AFH market, alongside an operator’s ability to pass on costs to the end consumer.

IGD opinion

Nichola Gallagher, Senior Analyst at IGD says, “Operators in the Away From Home market are facing unprecedented challenges due to rising labour costs and other operational expenses. It is crucial for businesses to adopt a mix of pricing strategies, cost-cutting measures, and operational shifts to stay competitive and maintain profitability in this evolving landscape.”

Sugar tax

The government has announced proposed changes to the Soft Drinks Industry Levy (SDIL) as part of a consultation. This includes:

• reducing the minimum sugar content at which the SDIL applies to qualifying drinks from 5g to 4g total sugar per 100ml

• removing the exemption for milk-based drinks whilst introducing a ‘lactose allowance’ to account for the natural sugars in the milk component of these drinks

• removing the exemption for milk substitute drinks with ‘added sugars’ beyond those sugars derived from the principal ingredient, such as oats or rice

Businesses can respond to the consultation by 21 July 2025.

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IGD opinion

Since the introduction of the Soft Drinks Industry Levy in 2018,  sugar levels in in-scope soft drinks have dropped by 46%, preventing cases of obesity and hospital admissions for dental caries in children. This is thanks to companies reformulating their products and shifting consumers towards making healthier choices.

The government suggests that removing the current exemptions to milk-based drinks and reducing the minimum sugar content at which it applies could further improve these results and encourage reformulation of those drinks that currently sit just below the 5g/100ml sugar threshold. 

For tips on reducing sugar in your products, check out our Product Development and Reformulation Guidance.

Climate change warning 

The Climate Change Committee (CCC) has reported that “the UK is not appropriately prepared” for the “unequivocal evidence that climate change is making extreme weather in the UK more likely and more extreme.”

The CCC states that over half of England’s top quality agricultural land is at risk of flooding today, with a further increase in total agriculture land at risk expected by 2050. Climate change also poses a major threat to UK biodiversity, at a time when it is degrading rapidly.

Download our latest Resilience report: Building a resilient food system to understand the key risks impacting the food system, in particular, why climate change and geopolitics pose the gravest threats.

Download the Net Zero Transition Plan for the UK Food System to review evidence-based proposals for how industry and government can achieve ambitious net zero targets by 2030 and 2050.

Inflation changes

Starting in March 2026, the ONS will change how it calculates food and drink inflation.

Half of the data will come from retailer scanning records, the other half from surveys. This new method aims to improve accuracy and provide broader coverage. ONS trials suggest food and drink inflation, and overall inflation, may be slightly lower due to more promotional data. However, past data won't be adjusted. The update will coincide with the usual annual changes to the sample “basket” and “weights” 

IGD opinion

The ONS has been working on this change for a while as part of ongoing improvements to inflation data.

Trials suggest the impact on results will be small, which is likely why past data won’t be adjusted.

Shoppers won’t notice a difference in their experience of inflation or how they respond to it. However, the new method is beneficial overall, as it gives retailers and suppliers more recognition for their pricing strategies and promotions.