Canadian grocers make $3.27M per year from penny-rounding, finds 19-year-old economics student

According to a research conducted by third-year economics and mathematics student Christina Cheng, Canadian grocers are making $3.27 million per year from penny-rounding.

In 2012 Ottawa announced its plan to phase out coppers coins, as a result, cash purchases are now rounded up or down to the nearest five-cent increment.

Christina Cheng is a young researcher at the University of British Columbia.She liked to know the real beneficiary and started to investigate in her spare time.

“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.” — she said.

Cheng spent 45 days to collect 18,000 prices at grocery stores. She got help from her friend and took pictures of price tags and entered the data into a spreadsheet. A simple observation found most of the prices were ending with o.98 0r .99 . And when the tax is not applicable these figures get rounded up for cash transactions.

She took the data and used a computer simulator to create “grocery baskets” with various items and adjusted different variables like numbers of items and amount of taxes. And then collected data from the Bank of Canada on what payment methods consumers are most likely to use.

Finally, she found the grocery stores are making profits from penny-rounding.

“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” — she said.

The Retail Council of Canada disagrees with Cheng’s findings.

“The study’s methods don’t reflect real grocery baskets or take into account the impacts of various provincial taxes on bill totals” — said Karl Littler, The Retail Council of Canada’s Vice President (Public Affairs).

Her study has won the competition for the best undergraduate student paper at the International Atlantic Economic Society’s conference in Montreal.

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

 

 

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