Coinage Review submission
SUBMISSIONS of the
NEW ZEALAND RETAILERS ASSOCIATION to the
RESERVE BANK OF NEW ZEALAND in respect of
THE 2004 COINAGE REVIEW
September 2004
Introduction
These brief submissions are presented by the New Zealand Retailers Association.
Background
The Association is the largest trade association involved in the retail industry in New Zealand. We represent an industry that has annual sales of $50b and which employs some 325,000 people (17% of the workforce) in some 49,000 outlets throughout New Zealand. Our membership includes the major supermarket and general merchandise chains, specialised chains, traditional department stores and thousands of owner operators. We also service a number of specialised trade groups of plumbing materials suppliers, metal fastener distributors, bicycle dealers, pet shops, jewellers and equestrian suppliers.
Comment
We understand that the Bank has recently commissioned market research on the future of the 5 cent coin in New Zealand. We have met with Bank Officials and discussed the research results, but have not sighted a copy of the full research document that we understand concludes that the majority of consumers and a majority of retailers support the withdrawal of the 5 cent coin. Nor have we seen any official discussion paper released by the Bank on the future of the 5 cent coin.
However, in an endeavour to address the issue, we have undertaken a limited survey of our major members on this issue and wish to advise that there is no support for the withdrawal of the 5 cent coin from circulation in New Zealand.
Our prime reason for opposing any changes involves rounding issues associated with merchandise at point of retail sale, consumer perception and inflation. However other issues, such as additional compliance costs, would also arise if the coin was retained but the size of the coin was altered. Given such a scenario expensive physical mechanical changes would clearly need to be made to all coin operated machines such as parking meters, cigarette vending machines, poker machines, drink vending machines just to mention a few.
As far as rounding is concerned, retailers have since 1 and 2 cent coins were abolished, used a process, normally known as the Swedish Rounding, to round prices for cash sales at the check out. The rounding is normally only applied to the total purchase price (the total purchase basket) and is only used when the consumer is paying with cash (not for credit or debit sales which are charged at the actual price of the total purchase).
We wish to point out that if the 5 cent coin is removed then rounding has a more meaningful effect upon retailers' margins. Currently, most cent based price points are at the 5 cent/9 cent level - $9.95 or $9.99 and for many retailers under normal rounding rules these prices would round up to $10 for a cash sale. However, some retailers currently round down where the value is to the 5c price point due to consumer pressure. If the 5 cent coin was removed altogether, we expect cent based price points, other than at the ten cent multiples level, would no longer be used for retail cash purchases.
We also see a more general concern if the 5 cent coins were abolished in New Zealand and they continued to be available in both Australia and the USA. Put simply, if the US and Australia still use them with the size of their economies, then there is no valid reason for New Zealand to do away with them.
We also have concerns about the inflationary effect of doing away with the 5 cent coin and consider that many retailers could put prices up from the 95 cents to 99 cents to avoid point of sale disputes with consumers. Such rounding would only be one cent but it would have an inflationary effect. However, other retail outlets with low price points (e.g. dairies) have customers that only purchase a single item and such consumers may find that all prices have similarly gone up to the 99 cent level from 95 cents - again inflationary.
In order to offer evidence to substantiate our submission we invited comment from a broad cross section of the major chain stores in New Zealand and a summary of some of their views are set out below
Progressive Enterprises Ltd - Supermarket chain
We fully agree with your proposed submission and concur with your comments pertaining to Swedish rounding as well as the competitive nature of the industry.
Foodstuffs NZ Ltd - Supermarket chain
We very much support the retention of the 5 cent coin and are happy to support your submission
Farmers Trading Company - General merchandise chain
Farmers are firmly of the view that the 5 cent coin should remain. We believe customer reaction and that of the general consumer would be very negative if the coin was removed from circulation. For retailers selling lots of low price items it would necessitate increased retail prices to preserve margins. This would have an unnecessary inflation effect.
Hallensteins - Specialised menswear chain
We do not support the removal of the 5 cent coin and concur with all the comments expressed in your paper.
H and J Smith Ltd - Invercargill based department store
We agree with the position taken.
Tourist Souvenir Group
We are not in favour of the demise of the 5 cent coin. There will be confusion in the market place as to pricing given the perception that higher prices will increase. Other countries continue to use small denominations without problems - Australia and the USA.
The Warehouse
We support the submission.
Briscoes NZ Ltd
We agree with your position and would support retaining the 5 cent coin
Mitre 10
Mitre 10, Palmers and Hammer Hardware support the retention of the 5 cent coin.
Retail Consultant - former GM of major NZ retail company
The abolition of the coin will cause untold customer complaints and will also be inflationary. Retailers will be accused by consumers of ripping them off with having to round up on cash sales to a greater degree.
Conclusion
In summary we strongly recommend that the 5 cent coin be retained.
We would like to meet again with Reserve Bank Officials to discuss these submissions.
New Zealand Retailers Association
September 2004
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