Retailers have been dealing with multiple challenges this year, from additional costs and labour shortages, to the rise of AI and shifting consumer habits.

Grocery Gazette takes a look at some of the most pressing challenges that retail executives are dealing with in 2025.

National Insurance increases

Last year the Autumn Budget led to higher National Insurance costs for retailers. In April 2025 this year, employers’ National Insurance contributions rose from 13.8% to 15% on a worker’s earnings above £175 a week.

This led to higher financial pressure as supermarket retailers struggled to absorb the additional expenses, leading to a push in inflation. Co-op has already reported an additional £80m in costs after the changes were introduced alongside extended producer responsibility (EPR) rules.

Khoury-Haq, Co-op’s CEO said: “As we move through 2025, we expect to continue to see headwinds strengthen in the form of wider external pressures and volatility with broader geopolitical issues and increased cost inflation.

“We’re already seeing it coming through National Insurance and extended producer responsibility charges, which represent an additional £50m and £30m, respectively, that our business will need to cover.”

Recently, a report by The Financial Times found that over 100 supermarkets are at risk of closure if the increased business rates on larger properties take effect in the upcoming Budget. Major executive retailers have urged the Chancellor to take action ahead of the Autumn Budget.

Retail crime

Shoplifting in the UK has risen to a 20-year high.

Retailers lost £2.2bn to theft in 2023/24, as well as £1.8bn spent on security and £200m in insurance costs – bringing the total annual bill to £4.2bn.

Supermarkets have had to think of creative ways to curb theft, with some introducing new technology recognition systems and another offering customers rewards for reporting shoplifting.

Iceland executive chairman Richard Walker said: “The scourge of shoplifting on our high streets continues to plague the UK, and the problem is only worsening, with criminal activity spreading across not just big cities but our market towns and villages too.”

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Finding skilled talent

Labour shortages are a continued cause for concern for retailers and food manufacturers.

In particular, the farming industry is facing a shortage of workers from the younger generation. In response, 6% of farmers have reduced output, while 13% plan to stop farming within the next 12 months if the situation does not improve, according to research from dairy manufacturer Arla.

Bas Padberg, managing director of Arla Foods UK, said: “What we’re seeing is the real impact of these workforce shortages on our farming industry, whether that’s in higher costs or lower milk production. The effect of this is ultimately going to be seen in the price and availability of products on the supermarket shelves, affecting the millions of people who rely on dairy as a source of nutrition in their diet.

Additionally, the upcoming inheritance tax on farming estates may deter younger people from joining the industry.

Supply chain fragility

UK harvests have been affected by worsening weather conditions and supply chain disruptions globally.

The National Farmers Union (NFU) has warned low rainfall is putting the agricultural sector at risk and may lead to lower crop harvests.

NFU President Tom Bradshaw said: “We are facing an increasingly volatile world. The World Economic Forum’s Global Risks Report forecasts heightened global instability over the next decade, with conflict and economic shocks on the rise and extreme weather becoming the norm.”

Retailers have to deal with the harvest’s disruption, which can lead to a supply chain problems and affects the overall performance of the business.

Sustainability targets versus commercial reality

The Government has been doubling down on its sustainability targets and regulations for supermarkets. However, retailers have expressed concerns over the financial implications of the changes.

The Department for Environment, Food and Rural Affairs (DEFRA) confirmed in June that EPR fees for glass packaging will be set at £192 per tonne, down from the previously indicated £240, but still significantly higher than comparable costs in Europe.

These packaging changes will add more pressure to retailers and lead to higher pricing for consumers. Experts have already warned of the financial impact of the new EPR regulations, which are set to go into effect this year.

Wine and Spirit Trade Association (WSTA) chief executive Miles Beale said: “There is no time to avoid these fees for produce sold this year. Having to pay the highest EPR fee for glass will force businesses to pass the costs onto consumers, pushing up inflation while – perversely – encouraging the use of cheaper and less sustainable packaging alternatives.”