Navigating Challenges, Seizing Opportunities

By Sylvain Perrier, President and COO, Mercatus

The incoming administration's planned tariff increases will significantly impact grocery eCommerce businesses. Depending on the specific goods targeted from imported produce and seafood to packaged foods—retailers could face rising costs across their supply chains. For eCommerce platforms selling groceries, these higher costs will likely be passed onto consumers, resulting in higher prices for imported products. This price inflation could shift consumer buying habits, where the demand for domestic goods might rise to avoid the added cost burden.

However, there is a silver lining. As tariffs push prices up, grocery eCommerce businesses may increasingly look to source products domestically to circumvent the higher costs of imports. While this could boost local sourcing and strengthen regional supply chains, it may also come at the expense of the availability of specialty or exotic items that consumers have grown accustomed to purchasing online—for example, coffee. For retailers, the challenge lies in balancing cost increases while maintaining consumer loyalty and demand.

Profit margins will be squeezed, and retailers will have to make tough choices: absorb the additional costs, pass them along to consumers, or explore alternative strategies. Subscription models and dynamic pricing could mitigate the impact of tariff-induced price hikes. For example, offering customers a subscription for bulk purchases or incentivizing loyalty through dynamic pricing could be key strategies to retain shoppers while managing operational costs.

Another factor disrupting the eCommerce grocery landscape in 2025 is the increasing frequency and intensity of natural disasters. The current wildfires in Los Angeles County have caused significant damage to both physical stores and supply chains, exacerbating the challenges faced by grocery retailers. Analysts predict insured losses in areas like Pacific Palisades alone could approach $10 billion, a staggering figure that could squeeze insurance companies already pulling back on policies.

Retailers with a strong eCommerce presence are feeling the pressure as communities are displaced and stores are rendered temporarily non-operational. This disruption is not limited to the immediate area but could have a ripple effect across the supply chain, leading to delays and reduced inventory. Retailers must prepare for a future where natural disasters can quickly alter the supply and demand landscape. Increased investment in disaster recovery planning, backup logistics solutions, and robust supply chain diversification will be key to mitigating these challenges.

As the eCommerce sector grows, so does the risk of fraud. In 2025, credit card fraud remains a persistent issue, with losses expected to continue their upward trajectory. This presents an urgent need for grocery retailers to adopt real-time, AI-based solutions to protect against fraud. While large retailers increasingly invest in these advanced fraud prevention tools, many smaller platforms remain ill-equipped to integrate such solutions effectively. AI-powered tools can offer in-depth cart analysis, evaluate purchase locations, and analyze delivery addresses to detect fraudulent activity before it occurs. Retailers must prioritize securing their systems and ensuring that they can integrate real-time fraud detection into their platforms to safeguard both their business and customer trust.

Labour costs will continue to be a significant challenge for grocery retailers throughout 2025. As wages rise and demand for workers in eCommerce fulfillment centers increases, the pressure to optimize labor expenses grows. At the same time, retailers must ensure that they do not compromise on customer satisfaction by inflating substitute items or reducing service quality.

One solution lies in automating order assembly to accelerate fulfillment without inflating labor costs. Technologies such as robotic process automation (RPA) and artificial intelligence can help streamline order picking and packaging processes, reducing the reliance on human labor while improving order accuracy and delivery times. Retailers should invest in automation technology that enhances operational efficiency without sacrificing customer experience.

While AI adoption has been a buzzword for several years, 2025 is the year that many grocery retailers will begin experimenting more aggressively with artificial intelligence. AI can improve everything from inventory management to personalized shopping experiences, allowing retailers to streamline operations and boost customer satisfaction.

However, challenges surrounding data governance and security remain a major obstacle for widespread AI adoption. Retailers must invest in robust data management systems and ensure that they can securely handle the vast amounts of consumer data necessary for AI to function effectively. From personalized product recommendations to predictive analytics for inventory planning, AI holds significant potential to revolutionize grocery eCommerce, but only if retailers can manage data securely and responsibly.

Despite these challenges, the number of engaged U.S. households purchasing groceries online will remain consistent at around 80 million. Both first-party (1P) and third-party (3P) providers will continue to compete fiercely for market share, offering additional incentives to attract and retain one another's customers. This ongoing competition will likely spur further innovation in service offerings, from faster deliveries to enhanced customer experiences.

In response, grocery retailers must focus on revamping their engagement and loyalty programs. By leveraging data and analytics, retailers can create targeted loyalty initiatives that incentivize consumers to increase their basket size, both in-store and online. Personalized offers, exclusive deals, and tailored promotions will be critical for differentiating a retailer's loyalty program in an increasingly crowded market.

Amazon, the eCommerce behemoth, will continue to be a dominant player in the grocery market. However, in 2025, we will see a shift in Amazon's strategy as it moves from a competitor to a partner. The tech giant is increasingly looking to collaborate with retailers to offer solutions that bolster its own grocery eCommerce business. For smaller grocery retailers, partnering with Amazon could provide access to a vast consumer base, supply chain efficiencies, and AI-driven tools to improve their operations.

Retailers should consider how they can leverage Amazon's ecosystem to reach more customers and enhance their digital offerings. Whether through fulfillment partnerships, advertising on Amazon's platforms, or utilizing Amazon's cutting-edge technology, there is ample opportunity for grocery retailers to benefit from this shift in Amazon's approach.

Finally, as the percentage of Americans aged 65 and older continues to grow—reaching 18.5% in 2024—grocery retailers must rethink how they engage with this demographic. Older consumers are increasingly tech-savvy, but many still face challenges navigating traditional eCommerce platforms. Retailers should consider developing voice-commerce solutions powered by AI specifically tailored for this demographic. A "second generation" of voice commerce could offer a more intuitive and accessible shopping experience for older consumers, leveraging AI agents to simplify the online grocery shopping process.

The grocery eCommerce industry in 2025 will face significant challenges, from geopolitical pressures like tariff increases to the disruptive effects of climate change and the ongoing battle against fraud. However, with the right strategies in place, grocery retailers can navigate these challenges while capitalizing on emerging opportunities. By embracing automation, rethinking customer loyalty, and adopting AI-driven solutions, the grocery eCommerce sector can continue to thrive in a rapidly changing landscape.