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

Ottawa announced plans in 2012 to phase out the copper coin

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 Cheng 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 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.

“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, 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.

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, Cheng said.

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.

The Retail Council of Canada disagrees with Cheng’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 Cheng’s simulated baskets included.

Littler said the council’s members have reported anecdotally that penny-round 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.

Cheng 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 Cheng said really surprised her professors.

“Tying research with application is what I love to do,” she said.

Gemma Karstens-Smith, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

COLUMN: Filling in transportation gaps for Delta seniors

ML Burke writes that government ought to expand the home support programs to include paid drivers

North Delta crime beat: week of May 15

A selection of property crimes submitted weekly by the Delta Police Department

VIDEO: Burn scars now a ‘badge of honour’

White Rock woman shares story of survival after a terrible accident in 1978

VIDEO: Langley MS Walk is a family affair for many involved

Even the event organizer’s family has been hard hit by the debilitating disease.

Historic Stewart Farm’s Royal Victorian Party

Event celebrated in South Surrey last week

Trans Mountain pipeline: Is it worth the risk?

Concerns range from the threat of an oil spill to the impact of tanker traffic on wildlife

Wildfire sparked north of Merritt, estimated 8 hectares

BC Wildfire Service is responding to the fire near Chattaway Lake FSR 27 kilometres north of Merritt

Heavy police presence after reported shooting in Richmond

Reports say a man was hit while riding a motorcycle

B.C. to spend $181M to create 200 general practitioner jobs

Jobs will go to new medical school graduates

Federal leaders trade barbs about India trip at press gallery dinner

Justin Trudeau’s infamous trip to India earlier this year was the focus of many of the jabs

Most Read