How Higher Grocery Prices Are Changing How Consumers Shop for Food

The planned but failed Kroger-Albertsons merger captured headlines in the grocery sector in 2024, and the latter is scheduled to announce its third-quarter results Wednesday (Jan. 8).

But as the grocery industry begins 2025, retailers are focused on enhancing customer experiences, especially through personalized services and digital integration. In-store experiences, such as styling services, will become key strategies to increase foot traffic and engagement. Meanwhile, eCommerce will continue its swift growth, with online grocery sales predicted to expand by 10%, outpacing the overall market. Amazon is also set to integrate its AI-powered assistant, Rufus, into brick-and-mortar stores, with plans to roll it out in Amazon Fresh and Whole Foods locations.

Discount Grocery Retailers Face Challenges

Discount grocery retailers, however, will face challenges in retaining customers as consumer priorities shift. Discount chains like Aldi and Dollar General, which thrived during high inflation, will struggle in 2025 as consumers look for greater convenience, value, and variety. This trend will benefit larger players, such as Walmart and Amazon, which dominate the grocery eCommerce space. In addition, continued consolidation is expected within the grocery sector, with smaller retailers seeking partnerships to stay competitive against industry giants.

The Role of Mergers and Acquisitions

Meanwhile, the grocery sector will also see a continued focus on mergers and acquisitions, as companies seek scale to compete with larger retailers. The collapse of the Kroger-Albertsons merger leaves both companies in a precarious position, with questions surrounding their next steps. As regional grocers look to grow through M&A activity, industry consolidation could intensify in the coming year. This will be coupled with ongoing labor concerns as grocers balance profitability with worker retention strategies.

Cost Containment and Consumer Behavior

As inflationary pressures ease, the grocery industry faces new challenges, Matt Garfield, managing director for retail and consumer products at FTI Consulting, told PYMNTS.

“Consumers, feeling the effects of sustained inflation, are adopting cost-containment measures such as trading down to private labels, shopping at discount or wholesale retailers, and focusing on pantry essentials,” he said. “This shift has led to decreased basket sizes and more focused shopping trips. Meanwhile, digital platforms and technology are playing a significant role, with grocery stores investing in AI for inventory management, pricing optimization, and personalized shopping experiences. The growth of online grocery shopping continues, with eCommerce expected to outpace in-store sales, forcing brick-and-mortar stores to enhance mobile experiences, optimize in-store pickup, and adjust labor to meet new demand patterns.”

As PYMNTS Intelligence data cites, 61% of paycheck-to-paycheck consumers say “no” to nice-to-have items in favor of essential groceries, a point not lost on Garfield.

Consumers Face Wallet Strain Amid Grocery Inflation

“Consumers continue to face wallet strain from years of inflationary pressure on core grocery categories,” he said. “Confronted with additional inflationary pressures, we expect customers to double down on their existing cost containment measures,” he said, including trading down from brand names and shopping at discount or wholesale stores, and resisting impulse buys. “We are also seeing decreased basket sizes and more focused and shortened shopping trips as consumers focus their wallet spend.”

This ongoing cost-conscious behavior is reshaping the grocery landscape, according to Sudip Mazumder, SVP, retail industry lead, North America, at digital consultancy Publicis Sapient. In response, he said, the North American grocery market in 2025 will remain competitive, with moderate growth driven by population expansion, urbanization and evolving demands.

“Discount grocers like Aldi are expected to thrive, pushing traditional grocers to adjust pricing and expand private-label offerings,” he told PYMNTS. “With the Kroger-Albertsons merger off the table, industry players will likely seek new partnerships and focus on eCommerce and delivery innovations, with Amazon leveraging its technology to enhance convenience.”

He added that artificial intelligence (AI) and automation will transform the labor market, driving efficiency but also creating new roles that require more skills. “To succeed, grocers must manage AI’s ethical implications, ensure data privacy and address workforce training needs while adapting to trends like eCommerce growth, health priorities, and sustainability,” he said.

Affordability and Consumer Priorities in 2025

Affordability has become a theme for 2025 in the grocery sector, according to Zachary Robichaud, instructor, School of Retail Management, Ted Rogers School of Management, Toronto Metropolitan University.

“Value remains a central theme as consumers continue to prioritize affordability, driving growth in online grocery shopping and challenging discount retailers to maintain their relevance,” Robichaud told PYMNTS. “In Canada, its largest grocery player, Loblaws, has considerably expanded its discount banner (i.e., No Frills) and introduced new city formats to this chain. The collapse of the Kroger-Albertsons merger underscores the complexities of scaling in a highly competitive market, potentially shifting focus toward regional acquisitions and internal investments. As digital and physical retail converge, strategies that combine convenience, personalization, and value will define the future of grocery retail.”