The Complete Guide to Using AI in the Retail Industry in Israel in 2025

Retail leaders in Israel can't ignore AI in 2025: the country's AI ecosystem is racing ahead (an Israel AI market forecast projects a 28.33% CAGR toward $4.6B by 2030) and private investment has poured in, nudging the sector into a global spotlight; at the same time roughly 28% of Israeli businesses reported actual AI use in the past six months, signaling real-world momentum across stores, supply chains, and customer service.

Israeli retail-tech firms - more than fifty showcased at NRF 2025 - are turning trends like unified commerce, AI-powered personalization, AR/VR try-ons, and frictionless payments into practical tools for merchants of every size, shrinking the gap between high-tech and traditional trade.

For retail teams ready to move from curiosity to action, practical workplace training like the Nucamp AI Essentials for Work bootcamp syllabus and market reads such as the GTLaw Israel AI market trends (2025) and the IDI analysis of business AI adoption in Israel make it easier to prioritize pilots that boost sales, cut returns, and tighten last-mile logistics.

Dror Bin described AI as “the new oil.”

The future of AI in Israel's retail scene looks pragmatic and inventive: Israeli startups are moving beyond hype to ship tools that make unified commerce, hyper-personalization, and immersive shopping practical for merchants of every size, and more than fifty Israeli retail-tech firms showcased those capabilities at NRF 2025; from AI-driven demand forecasting to AR try‑ons and frictionless payments, these solutions aim to boost conversion, cut returns and tighten last‑mile logistics.

Local vendors are translating global trends into Israel‑ready use cases - AI personalization and predictive inventory models to smooth small‑chain ordering, computer‑vision shelf monitoring and cashierless checkouts for urban convenience, and supply‑chain transparency tools that support sustainability goals - so retailers in Tel Aviv or Haifa can pilot measurable pilots without rewiring legacy systems.

Practical reads and trend forecasts such as the Israel Economic Mission's roundup of retail innovation and Ciklum's 2025 predictions help merchandisers choose sensible first projects (think demand forecasting, smarter POS integrations, and customer‑facing AR) that deliver clear ROI while keeping pace with global competition.

Learn more via the Israel Economic Mission retail innovation overview and Ciklum 2025 retail trends analysis.

Israel's 2025 AI outlook mixes global momentum with local muscle: while the global AI software market is forecast at about US$174.1 billion in 2025 with a strong multi‑year runway, Israel's own digital transformation market is expected to reach roughly US$1.42 billion in 2025, backed by a dense startup ecosystem, multinational R&D labs on the ground, and targeted government support - including plans cited for a national AI program - so pilots and commercial deployments can scale quickly.

Sector-specific pockets show even faster growth: Israel's AI in precision medicine market is projected to expand rapidly (a 25.6% CAGR to 2030), and ABI Research notes Israel captured about US$1.59 billion in AI hardware and software investment in recent tallies, signaling that capital and projects coexist.

For retail teams that need context for investment decisions, the Israel Digital Transformation Market forecast and the ABI Research global AI software market outlook offer practical baselines, while reporting on the industries that will lead AI growth in Israel highlights where talent and funding are concentrating.

“The medical AI sector has seen significant growth over the last year and is expected to grow exponentially,” Greicer says.

Israel's National AI Program is a coordinated, multi‑year push to keep the country at the forefront of AI by investing in research, compute, talent, public‑sector adoption and responsible regulation: the OECD describes the initiative as a centrally directed effort (start 2021, running through 2027) with five core objectives - from reinforcing AI infrastructure and Hebrew/Arabic NLP resources to scaling adoption across industry and government - and a headline budget of roughly NIS 1 billion to date; its second phase (through 2027) brings a targeted NIS 500 million package for R&D infrastructure, a National AI Research Institute, “Moonshot” projects, expanded human‑capital tracks (including IDF training streams) and better access to government datasets to accelerate private‑public pilots.

A major, tangible outcome is the national supercomputer procurement - covered in detail by EU Reporter - that promises massive new training capacity under the program's public‑private access model.

Together these moves aim to make Israel not just a startup nation but a research and compute hub that helps retailers, municipalities and startups pilot real AI projects with clearer guardrails; see the OECD report on Israel's National AI Program and Israel's National AI Program official materials for the official roadmap and objectives.

“The second phase of the National Artificial Intelligence Program strengthens our commitment to leading breakthroughs in the field. We will continue to invest in promoting research and development, high‑tech industries, and human capital, while embedding AI in public services, particularly in local governance, with the goal of reducing disparities and making AI accessible to all Israeli citizens.”

Israel's AI landscape is anchored by a centrally directed National AI Program - a multi‑year, MIST‑led effort that bundles research, compute, talent and public‑sector pilots so the country can scale real projects rather than just talk about them; the program's five big goals (research & infrastructure, talent, data assets, public adoption, and international cooperation) are spelled out in official materials and OECD summaries (Israel National AI Program official website, OECD overview of Israel's National AI Program).

Phase II has pushed heavy infrastructure bets - most notably Nebius' selection to build a national supercomputer with roughly 16,000 petaflops of capacity and a public‑private access model intended to give startups, academia and government affordable training cycles - an investment that exceeds NIS 500 million and is slated to begin operations in early 2026 (Science|Business report on Nebius selected to establish Israel's national supercomputer).

Complementary moves - sectoral regulatory sandboxes, data‑pool initiatives for domains like agriculture and education, and draft Privacy Protection Authority guidelines in 2025 - mean retailers can expect clearer pathways for pilots, access to compute and talent pipelines, and practical sandboxed environments to test personalization, demand forecasting and last‑mile routing without leaping straight into full production.

“Israel's use of artificial intelligence has wreaked horrific destruction on Gaza; this technology will likely be sold across the globe in the near future.”

NRF 2025 crystallized the practical AI playbook Israeli retailers are already piloting: demand forecasting and SKU‑level inventory models that cut stockouts, hyper‑personalization engines for web and in‑store touchpoints, computer‑vision shelf monitoring and cashierless checkout prototypes, AR try‑ons that reduce returns, and smarter last‑mile routing that leverages Israel's compact geography to shave delivery costs and SLAs - prompts and examples for Israel‑specific routing are collected in the Nucamp guide to last‑mile AI. Fraud prevention and behavioral‑biometrics are also headline use cases for protecting payments, while chatbots and conversational AI free up human agents for escalations; see practical vendor demos in the NRF 2025 Exhibitor Directory - Cloud and AI Vendors and the Israel Export Institute - NRF 2025 Delegation and Trade Support for market entry contacts.

For retail teams in Tel Aviv or Haifa, the takeaway is concrete: prioritize one measurable pilot (forecasting, POS integration or delivery optimization), instrument the metrics, and use demonstrated vendors from the NRF roster to shorten the path from proof‑of‑concept to saved margin and happier customers - the expo floor showed end‑to‑end solutions from cloud and AI platform leaders to specialist vision and checkout providers.

Dror Bin described AI as “the new oil.”

Start small, practical and measurable: pick one high‑impact pilot - SKU‑level demand forecasting, a chatbot for post‑purchase support, a virtual try‑on for high‑return categories, or last‑mile routing that exploits Israel's compact geography - and treat it like a lab where metrics (fill rate, return rate, delivery SLA) are instrumented from day one.

Vet vendors for real, scalable models rather than surface "AI" labels (savvy buyers do this, per Greenberg Traurig's roundup of Israeli AI trends), focus on data quality and API integrations so models can access clean POS, inventory and delivery feeds, and run the pilot across one store, product line or neighbourhood to limit risk and prove ROI before scaling.

Follow practical development steps used in retail AI projects - data prep, small‑scope testing, UX tuning, and phased rollouts - and plan for governance and privacy up front: Israel's policy favors principled, sector‑specific regulation and the Privacy Protection Authority issued draft AI guidance in May 2025 that highlights transparency, consent and accountability.

Use local resources and prompts for Israel‑tailored routing and fraud prevention to speed deployment, document outcomes, and only then expand the scope - one tight pilot with clear savings and happier customers will make the case to scale across the chain.

GTLaw 2025 AI and Israeli market trends report, White & Case Israel AI regulatory tracker 2025, Last-mile routing use case for retail in Israel.

Legal, regulatory and ethical considerations are now a core part of any Israeli retail AI playbook: Amendment 13 to Israel's Privacy Protection Law raises the bar for notice, consent, governance and enforcement (the Privacy Protection Authority has already levied fines like HOT's ₪70,000), so retailers must treat personal data and even AI‑generated predictions as regulated information rather than “just analytics” - see MineOS's clear explainer on Amendment 13 for the headline changes.

Practically, that means mapping databases, appointing a DPO where thresholds apply, running DPIAs for high‑risk models, and baking transparency into customer flows (customers must know when they're interacting with AI), while planning mandatory security testing and tighter vendor controls; the PPA's draft directive lays out lifecycle obligations from training to deployment and flags scraping, model explainability, accuracy and bias as enforcement priorities.

Ethically, retailers should prioritise explainability, bias mitigation and data minimisation so personalization boosts sales without eroding trust, and operationally they need automated workflows for consent records, incident reporting and third‑party oversight to survive faster enforcement and potential litigation - short pilots with auditable metrics, clean data pipes and vendor contracts are the safest route to scale (see the PPA draft directive for recommended measures and required controls).

Building AI teams in Israel centers on Tel Aviv's dense talent market, deep capital pools and a culture of rapid, resilient scaling: Tel Aviv ranks #4 globally with an ecosystem value of about $253B, and roughly 25% of Israeli startups now focus on AI while those firms attract nearly half of local tech investment - facts that make hiring data scientists, MLOps engineers and product‑adjacent roles much easier than in many markets.

Practical steps for retailers: hire a small cross‑functional pod (data, infra, product and a vendor‑savvy engineer), tap government and non‑dilutive R&D support to stretch runway, and instrument outcomes early because data gaps still leave only about 40% of retailers fully prepared for AI; conversely, 55% have already created dedicated AI teams and 65% are accelerating AI strategies, signaling rapid upskilling opportunities for supervisors and store managers.

Recruit from local universities and startups, prioritize candidates with production ML experience over CV buzzwords, and pair new hires with short, measurable pilots (forecasting, POS integrations or last‑mile routing) so wins pay for expansion - one vivid sign this works: Tel Aviv's hub produces export‑ready retail AI startups that can move from POC to live store in months, not years.

See the GT Advisory 2025: 5 Trends to Watch - AI and the Israeli Market for market context, the Startup Genome: Tel Aviv tech ecosystem by the numbers for ecosystem metrics, and the Riverbed report: Retail AI readiness and data gaps when planning hiring and budgets.

“Israel is one of Nvidia's largest hubs in terms of population ratio. It's also home to some of our most talented engineers. One of our most significant investments, NVSwitch, originated from Israel.”

Concluding a practical playbook: Israel's retail teams should move from watching to doing - start with one measurable pilot (SKU‑level forecasting, a chatbot for post‑purchase support, or a last‑mile routing prompt that exploits Israel's compact geography to lower logistics costs and improve SLAs), instrument clear KPIs, and use small wins to fund expansion; the country's AI momentum is real (about 28% of businesses used AI in the past six months, per the IDI/CBS analysis) and the broader market is forecast to grow fast (a projected 28.33% CAGR toward $4.6B by 2030, per GT Advisory citing Statista), so timing matters.

Pair those pilots with workforce upskilling - practical, role‑focused courses like the Nucamp AI Essentials for Work (15 weeks; foundation, prompt writing and job‑based skills) give store managers and operations teams the tools to own AI outcomes - and choose vendors and pilots that deliver auditable ROI rather than surface-level “AI” branding.

In short: pick one tight, measurable experiment, train the people who will use it, and let a documented lift in margin, returns or delivery times make the case to scale.

“The medical AI sector has seen significant growth over the last year and is expected to grow exponentially,”