US Retailers Brace for Impact as Penny Production Ends
The rapid phasing out of the US penny is creating unexpected challenges for retailers, raising concerns about costs, legal liabilities, and operational disruptions during the crucial holiday shopping season. Trade groups are urgently seeking legislative relief as the US Mint struck the final copper penny earlier this year, following a decision by President Trump to halt production due to the coin’s high manufacturing cost – nearly four times its face value.
The move places the US among other major economies that have already discontinued their smallest denomination coins. Canada eliminated the penny in 2012, and Australia discontinued its one-cent coin in 1992. However, the US transition is occurring at an unprecedented pace. The Mint ended large-scale penny production in June, and the Federal Reserve has already suspended distribution from the majority of its 165 coin hubs.
“When Canada did this, it took them three years,” noted a representative from the Retail Industry Leaders Association, which represents major US store chains. “We are just moving at lightning speed, and it’s spreading much quicker than what anybody anticipated in the industry.”
The American Bankers Association has formally requested the Federal Reserve reopen closed coin terminal locations, citing a lack of access to pennies for retailers in affected areas. According to a senior vice-president for payments at the ABA, “In those areas [where coin hubs are closed], retailers that want pennies don’t have a source for them.”
While government officials have no immediate plans to recall the approximately 300 billion pennies currently in circulation, many retailers are already experiencing shortages. A director of government relations at the National Retail Federation reported that retailers with numerous stores “have been out of pennies for quite a few weeks now.”
To address the shortfall, stores are increasingly posting signs informing customers that cash transactions will be rounded. “If we owe them a penny in change, and can’t give them a penny, we’ll give them a nickel,” explained the chief executive of the US division of Lidl, the German grocery chain. However, this practice is proving “very stressful” for employees who are performing rounding calculations “dozens, hundreds of times in a day.”
Rounding, while seemingly minor, carries significant financial implications. The National Association of Convenience Stores estimates that rounding down in convenience stores – where cash accounts for roughly half of the 125 million daily purchases – could lower industry sales by approximately $1.25 million per day, as cash transactions typically require two pennies in change.
An analysis by the Federal Reserve Bank of Richmond previously estimated that rounding to the nearest nickel would cost consumers around $6 million annually. One potential solution, suggested by the ABA, is to adopt the Canadian rounding model: rounding down for amounts ending in 1, 2, 6, or 7 cents, and rounding up for amounts ending in 3, 4, 8, or 9 cents.
Retail groups are actively lobbying Congress for legal protection to round purchase values to the nearest nickel. They argue that existing laws in at least 10 states and cities requiring exact change create an unfair disadvantage for cash-paying customers. The dwindling penny supply makes providing exact change increasingly impossible, they contend.
Complicating matters, some states maintain minimum pricing regulations for items like milk and tobacco. As a convenience store association spokesman explained, “If you round down, that would violate minimum pricing.” Furthermore, rounding practices could impact recipients of federal food subsidies under the $100 billion Supplemental Nutrition Assistance Program, potentially disadvantaging those who pay with cash.
The lack of pennies also poses challenges for cashing checks, a vital service for lower-income households without bank accounts, according to retail groups.
Despite the complexities, retail groups remain optimistic that a bipartisan bill addressing these concerns will gain traction in Congress following the recent government shutdown. However, the timing is particularly challenging, coinciding with preparations for the critical holiday shopping season.
“The biggest thing is that this is occurring right now during the craziest time of the year, the most important time of year, which is holiday,” said a senior executive vice-president of public affairs at RILA, whose members include Walmart, Target, and TJX.
Some retailers are proactively addressing the coin deficit. For example, supermarket chain Giant Eagle recently offered customers gift cards worth twice the value of any pennies they turned in. The situation underscores the far-reaching consequences of a seemingly small change in currency policy, and the urgent need for legislative clarity as the US navigates a future without the penny.
