Silver Coin Review - February 2005
Submissions of the New Zealand Retailers Association to the Reserve Bank of New Zealand in respect of the Silver Coin Review
February 2005
Introduction
These submissions are presented by the New Zealand Retailers Association. Our initial submissions on the review were filed in September 2004. A copy is appended for easy reference.
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 over $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
a) General Comments
The Association reconfirms its earlier submission that the five cent coins should not be withdrawn from circulation. As noted in that submission, our prime reasons for opposing any change involved:
- rounding issues at point of sale;
- consumer perception; and
- inflationary pressures.
The Association has undertaken further research amongst its major members on this issue given the Banks statement that it had 'undertaken research amongst consumers and retailers' and that the majority of both groups had agreed with their position that the five cent coin should be withdrawn. We believe such a survey to be necessary given our belief that the Banks own market research with retailers was indicative only as it was only conducted with '20 small retailers in the Wellington CBD".
Our survey concentrated principally upon those chain stores that we believed extensively used the five cent benchmark as part of their marketing and pricing strategy. We found that some of these members passed on details of the survey to a number of smaller retailers that were similarly affected so we have separated the results to differentiate between the different sectors of the market.
b) Survey results
Our survey of the major chains revealed:
- 12 chains supported the retention of the five cent coin;
- 1 chain supported the withdrawal of the five cent coin; and
- 4 chains were ambivalent on the issue.
Our survey of owner operators revealed:
- 20 stores supported the retention of the five cent coin;
- 5 stores supported the withdrawal of the five cent coin; and
- 2 stores were ambivalent on the issue.
We have not received any views from the small dairy sector, NZ Post or the fast food chains.
c) Effect of the withdrawal of the five cent coin on merchandise pricing
We wish to reinforce our earlier submission that withdrawal of the five cent coin will have a serious implication for both large and small retail stores throughout the country in relation to the universally accepted pricing model.
By way of background, when the one and two cent coins were withdrawn most retailers continued to price at predominantly the 99c and 95c level. However, where cash purchases were made retailers also opted to use the Swedish rounding formula which had the effect of:
- rounding down to the nearest 10 cent value for sales ending in 1c and 2c;
- rounding to the nearest 5 cent value for sales ending in 3c, 4c, 5c, 6c and 7c; and
- rounding up to the nearest 10c value for sales ending in 8c and 9c.
However, if the five cent coin is withdrawn we believe the pricing model becomes stretched, particularly in terms of consumer perception and the question will be asked whether retailers, particularly those selling low value items, will change their pricing model to the 90c mark or go up to the full dollar value.
We suggest that if 95c prices go down to 90c then there is a loss of margin for the retailer. However if the 95c price goes up to $1 then the individual retailer looses the psychological impact of pricing below $1, and the industry members would be seen to be profit takers, and the effect will consequently be inflationary.
As previously stated we believe the effect of the withdrawal of the 5 cent coin will provoke considerable negative consumer reaction. This may not be for a basket of goods but it clearly will be the case for single item, low value purchases for items such as:
- children buying lollies;
- a hamburger and other takeaway food;
- the daily newspaper;
- a postage stamp.
The other issue is the impact on goods sold by weight, e.g. fresh fruit and vegetables. These goods are sold on a price/kg basis with the final price being established by the weight purchased. The specialist fruit and vege shop or the roadside stall will have significant issues as the consumer could well be purchasing just 1.2 kgs of tomatoes, for example. Margin loss could be significant.
d) Traders Views
We believe it is appropriate to support our views with some practical comments from some of our members in different sectors of the market and appropriate comments are listed below:
Hallensteins, a nationwide menswear chain store states:
1. Cash represents 20% of our tender types and all our current price points with the exception of "2 for deals" all end in 95c, therefore the change proposed by the Reserve Bank will have a significant impact on our business.
2. There will be significant negative customer reaction if we continue to price ending with 95c, which is a key promotional price point.
3. We will experience a loss of margin if we decrease to 90c. Retail margins are already under significant pressure due to the competitive nature of this industry.
4. Negative customer perception of us as retailers if we round our prices to the nearest dollar, combined with a negative inflationary effect.
5. Consumers who choose to use cash should not be disadvantaged when making purchases from us. Often these people come from lower socio economic groups who already have pressure on their disposable income.
H and J Smith Ltd, a South Island multi-store chain states:
"We believe that 95 or 99 price points are a fundamental component of retail pricing. Our own company has believed that with a significant number of transactions involving only 1 or 2 items, that rounding concepts as used by supermarkets are not strictly appropriate and have preferred to offer exact pricing with correct change. Removal of 5 cent pieces therefore introduces rounding where it has not previously existed. While simplistic for the Government it shifts yet again the focus of who is implementing these policies back on to the business - in other words the retailer is the bad guy.
We also believe that there will be a detrimental effect on the customer at the lower end of the scale with price increases, children in particular will bear the brunt of this.
What happens to a 45c stamp? Is it now going to be rounded to 50 cents?"
Smaller retailers
Many smaller retailers echoed similar viewpoints. However, some of the social concerns identified by one smaller retailer, Tokia Publications, are we believe also appropriate. The company states:
"Learning currency values is an important part of the number strand of the mathematics curriculum and the loss of five cents which is of course an irregular number has much wider implications for children's primary learning about parts of numbers - leading directly to fractions and eventually algebra. Five cent coins are very useful in developing an appreciation of different currency values and early savings habits amongst children".
Views of other sectors
We note that there is no organisation that is able to present a perspective for the many smaller owner operator dairies spread throughout the country. However, we do note that a submission has been filed by the Confectionary Manufacturers Group of Australasia who is a major supplier to these types of stores and that they have similarly endorsed the retention of the five cent coin.
Changes to other coinage
We can see some merit in changing the 50 cent, 20 cent and 10 cent coins if such changes lead to cost savings. However, we do recognise that such changes will present additional costs to vending machines such as parking meters, cigarette vending machines, gambling machines and so on.
Conclusion
In summary we wish to 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
February 2005
|
