Pennies and profits

On Tuesday, I stopped in at a local grocery store to pick up a few things. The tab was small, so I paid with cash.

Usually when I do this, I like to toss some of the small change in my pocket into the charity can at the checkout counter. Even when I pay with plastic, if I have small stuff in my pocket, a few coins generally go into the can.

This time, however, there wasn't any small change involved in the transaction (or in my pocket), and although a light did go on in my head as to a discrepancy between the price on the till screen, and the change I got, it took a few moments for the light to get bright enough for me to notice it.

I had been overpaid in change. By one cent.

Not that I whisked to the parking lot yelling: “Start the car! Start the car!” I was by myself, and doing so would have been ridiculous. Besides, most of the time, I like to walk on my grocery errands. But on the way home, the light did not dim.

I had arrived on a sure-fire method of beating The Man on the disappearance of the penny, which began Monday. If the final price on the till tape ends with 1, 2, 6 or 7, I would pay with cash, because the price would be rounded down to the lower nickel. If the tag registers with 3, 4, 8 or 9 as the final digit, I would pay with plastic, in the exact amount, thus avoiding the rounding up.

You've gotta be sharp to stay ahead of The Man. Especially when pennies are involved.

Because, even though Canada will no longer be minting pennies, and will gradually take them out circulation, percentage points matter.

Paul Hunt is the president of Pricing Solutions. He's an international consultant and strategist advising clients on how to price their products in the marketplace.

An essay he wrote, back when the demise of the Canadian penny was first announced, says even a one per cent change in price makes a 12.5 per cent difference to the seller's bottom line. Don't ask me how, I'm no expert on this, but I suspect accountants are involved.

Canada has adopted the “Swedish rounding” method for dealing with cash transactions where there is no penny. But it's the Australians who have made the method famous.

In the 20 years Australians have had dealing in the matter, Hunt noticed a few lessons to be learned.

At first, instead of pricing something — a latte, for instance — at $3.99, retailers lowered the price to $3.95. The didn't want to suffer the “rounding up” effect that might hurt sales. But the one-per-cent/12.5-per-cent effect was brutalizing their profits.

So in Australia, you may find lattes and other items back at $3.99, and neither sales nor consumers have suffered from it.

To beat the system, consumers would need to order lattes in groups of three. The $11.97 price would be rounded down to $11.95, and two of the group would save a penny. (Or someone would have to drink more lattes than is healthy.)

It's estimated that Canada has about 6 billion pennies in circulation. It's going to cost taxpayers about $7.3 million a year to de-circulate them for six years. That's a net cost, over the annual revenue realized from recycling the copper and zinc in the coins.

But there is also the $11 million a year that taxpayers save by not having to mint coins that mostly end up in little jars in your bedroom, instead of going back into circulation. It's called hoarding, and it's one reason why Canada needed 6 billion pennies in the system.

The hoards are about to be emptied, and many charities are already at work to take advantage. Six billion pennies comes to $60 million in currency — or $750 million, if accountants are involved.

Even a small percentage of that would be a boon to a lot of charities.

So if you're looking at the hoard in your bedroom, consider dumping it on a charity of your choice. It's money you've already written off in your mental accounting, so you won't miss it.

In future, you can keep a steely eye to the bottom line and pay with cash 40 per cent of the time, and with plastic 40 per cent of the time. The 20 per cent is cash-neutral.

And take your time walking your groceries home. That saves pennies, too.