Canadian grocers make $3M per year from penny rounding: UBC study

Grocers make $3M per year from penny rounding

By Special to MoneySense on December 18, 2017
Estimated reading time: 3 minutes

Stores are profiting off the end of the penny

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VANCOUVER — Grocery stores across the country are cashing in on the demise of the penny, according to a young researcher at the University of British Columbia. Third-year economics and mathematics student Christina Cheung has written a paper that says Canadian grocers are making $3.27 million per year from penny-rounding. Ottawa announced plans in 2012 to phase out the coin, and as a result, cash purchases are now rounded up or down to the nearest five-cent increment. Cheung wanted to know whether the change was benefiting shoppers or stores. “Penny-rounding always becomes a guessing game,” the 19-year-old explained. “It’s a fun guessing game because it might not hurt in the short run, looking at several cents, but in the long run, I wondered if this actually accumulates.” Curious, she decided to use her spare time outside of class to investigate. First, Cheung enlisted a friend and they spent about a month and a half documenting more than 18,000 prices at grocery stores, taking pictures of price tags and entering the data into a spreadsheet. They found that most prices ended in .99 or .98 — numbers that would result in bill totals being rounded up for cash transactions, if tax is not applied. Cheung took the data and used a computer simulator to create “grocery baskets” with various items. She adjusted different variables such as the numbers of items and amount of taxes, and factored in data from the Bank of Canada on what payment methods consumers are most likely to use. Cheung said her analysis found that grocery stores are profiting from penny-rounding. In the end, Canadian consumers don’t end up paying much extra, but the rounding on cash transactions can mean big money for grocery retailers across the country, with each store standing to collect $157 per year, Cheung said. In October, a paper Cheung wrote on the research won a competition for the best undergraduate student paper at the International Atlantic Economic Society’s conference in Montreal. Her study is slated to be published next June in the Atlantic Economic Journal. The Retail Council of Canada disagrees with Cheung’s findings, said Karl Littler, the group’s vice president of public affairs. The study’s methods don’t reflect real grocery baskets or take into account the impacts of various provincial taxes on bill totals, he said, noting that the average grocery bill is $53 and consists of a larger number of items than Cheung’s simulated baskets included. Littler said the council’s members have reported anecdotally that penny-rounding is about 50-50, with half of the bill totals being rounded up and benefiting stores, and the other half being rounded down and benefiting consumers. “There’s no nefarious plan here to scoop pennies,” he said. Cheung said she isn’t looking to demonize Canada’s grocery industry, and simply wanted to look at an issue that affects most Canadians on a daily basis. Her work on penny-rounding was all done outside of class time as a labour of love, which Cheung said really surprised her professors. “Tying research with application is what I love to do,” she said.