According to a new study by a UBC student, a typical grocery store in Canada receives an additional $157 in revenue per year from penny-rounding.
The author of the study is Christina Cheung, a third-year dual degree student in economics and combined mathematics and statistics.
Cheung tackled the topic of penny-rounding in Canada by asking the question, “Will rounding on groceries benefit retailers or consumers?”
“When you go to a grocery store, most of the prices end in nine, which means when we round things the prices might actually round up,” she explained.
Her findings show that penny-rounding imposes a tax of $3.27 million Canadian dollars from consumers to grocery stores on a yearly basis in aggregate. Her research applies only when buying one or two items at a time; she found that three to 10 items have no rounding effect.
Cheung worked on the paper during her second year as a passion project outside of class, spending hours gathering data over winter break with the help of friends.
She chose to study grocery items since they are consumed universally, and therefore capture the entire population’s spending habits and preferences. Her research used over 18,000 price data, collected manually from three Canada-wide grocery store chains.
Cheung took first place in the International Atlantic Economic Society’s Best Undergraduate Paper Competition at their Montreal conference this October. Her winning paper, ‘Eliminating the penny in Canada: an economic analysis of penny-rounding on grocery items,’ will be published in a future issue of the Atlantic Economic Journal.
In 2012, the Canadian government announced it would phase out the penny from Canada’s coinage system. The decision to phase out the penny was due to its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environmental considerations, and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general.