Christina Cheng, a young researcher at the University of British Columbia finds that Grocery stores across Canada are cashing in on the demise of the penny.In October, a paper Cheng 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.
Third-year economics and mathematics student Christina Cheng through her paper says Canadian grocers are making $3.27 million per year from penny-rounding.Ottawa announced plans in 2012 to phase out the copper coin, and as a result, cash purchases are now rounded up or down to the nearest five-cent increment.
Cheng wanted to know whether the change was benefiting shoppers or stores.
Cheng, 19 explained, “Penny-rounding always becomes a guessing game.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, Cheng 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.
Cheng 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.
Cheng said her analysis found that grocery stores are profiting from penny-rounding.
Cheng highlighted that 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.Her work on penny-rounding was all done outside of class time as a labour of love, which Cheng said really surprised her professors.