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Independent retail should brace itself for tough trading conditions in 2025

Posted: 3 February 2025

By Greg Pitcher

Deli retailer

Retail bodies have highlighted the “toxic mix” of economic factors due to hit in 2025 as a retail analyst warned that business owners “will find their skills tested” this year.

National Insurance contributions, the minimum wage and business rates will increase for many in the sector in April while consumer confidence currently remains constrained.

James Walton, chief economist at retail analysts IGD, said he expected the economic environment to remain “very challenging” in 2025.

But he added: “Food & drink businesses have proven their ability to trade through tough times. Over Christmas, premium own-brand and branded goods did quite well against a generally gloomy background.”

Walton said this showed certain shoppers were still willing and able to spend on high-quality consumables.

“Small businesses such as farm shops and delis are well positioned to capitalise on this need and are small enough to be flexible,” he added. “But business managers will find their skills tested as they struggle with rising costs and increasing complexity.”

Emma Mosey, chair of the Farm Retail Association, said this year “presents a unique set of challenges for businesses”. 

She added: “The impact of the Budget, particularly the removal of business rates relief for retail and hospitality, and escalating employment costs, will continue to weigh heavily. 

“Coupled with the ongoing effects of higher interest rates and lingering supply chain disruptions, this creates a complex economic landscape. Businesses must remain agile and adaptable to navigate these headwinds.”

Andrew Goodacre, chief executive of the British Independent Retailers Association, said 2025 would be “even more challenging” than 2024. 

“We already know that employment costs will rise with the National Living Wage increasing by 6.7%, and business rates for many will increase by 140%,” he said. “At the same time, consumer confidence and footfall are low. 

“It is a toxic mix for any business to see costs rising by more than sales and we fear there will be more closures this year.”

The headline Consumer Prices Index measure of inflation dipped marginally to 2.5% in December but the rate of food & drink cost increases remained constant at 2% over 12 months. 

Bread, cereals and soft drinks saw a slowing in the rate of price rises while fruit, chocolate, sugar and sweets saw an increase in inflation.

However, the British Retail Consortium said its models suggested annual food cost hikes could rise above 4% in the second half of 2025 as Government policies bite. 

This article first appeared in the January-February 2025 issue of Fine Food Digest.