Sprite PESTLE Analysis

Published in Companies category by MBA Skool Team, Last Updated: February 21, 2021

Here is a detailed PESTLE analysis of Sprite which examines political, economic, social, technological, legal & environmental factors.

Political Factors:

The political factors in the Sprite PESTLE Analysis can be explained as follows:

Sprite is a sparkling, non-alcoholic beverage brand, part of The Coca-Cola Company. Consequently, the brand’s profits are also subject to income tax in the USA and other countries in which it operates. Thus, any change in corporate tax rules may materially impact the profitability of the business. Also, the company accepts in its annual report that overall assessment of tax audits could be different than their own estimates, raising the risk of legal disputes. The brand is also subject to numerous indirect taxes like duties, value-added taxes, excise, taxes on sugar-sweetened beverages, packaging taxes, etc. Various state and local governments impose such taxes.

For example, the US Congress was considering before levying federal excise tax on sugar-sweetened beverages, HFCS, certain other nutritive sweeteners. There is a possibility that such a tax may be considered in the future, too. Such actions could make Sprite costlier and may result in decrease in demand, since the aerated beverage segment is price-sensitive. Finally, the disruption caused by Covid-19 has adversely affected the sales of the brand. Due to the lockdowns imposed by governments across the world, restaurants were closed, sporting events cancelled, thereby restricting movement of people.

Image: company website

Economic Factors:

Below are the economic factors in the PESTLE Analysis of Sprite:

As a global brand, Sprite faces the risk of foreign currency exchange fluctuation. Moreover, Coca Cola used 70 currencies, other than USD and earned close to $26 billion in net operating revenues, outside USA.

Thus, any change in exchange rate, particularly of USD strengthening against local currencies, makes imports of certain raw materials costlier. Although the company uses derivative financial instruments, that does not fully reduce the exchange rate risk. The Covid-19 pandemic has significantly changed the economic prospects of several countries. The pandemic has caused increase in unemployment, decrease in discretionary spending by consumers, slowdowns or even recessions. This has caused a decline in demand of soft drinks too. Also, any increase in costs like electricity, natural gas, energy sources may affect the overall costs of production plants, bottling plants, company-owned distribution outlets. Increase in price of fuel or its shortage in any country, too poses a risk. This may adversely affect the financial performance of the company.

Social Factors:

Following are the social factors impacting Sprite PESTLE Analysis:

Over the years, consumer awareness about health has increased significantly. There are concerns among consumers and governments about obesity caused by overconsumption of soft drinks like Sprite, 7Up, Thums Up, etc. Governments, today, are increasingly considering levying taxes on sugar-sweetened beverages. Moreover, there are more regulations on the advertising, marketing, labeling, packaging of soft drinks. All these actions could affect the profitability of the brand. Also, there is a certain negative perception in the public against the use of specific ingredients of the company. These include non-nutritive sweeteners, biotechnology-derived substances, substances in packaging materials, etc. Some of these substances occur due to the production processes. Yet, perceived health concern regarding use of these ingredients may damage the goodwill of the brand, and reduce sales. In this digital era, consumer preferences and shopping patterns are changing. Consumers today purchase from mobile device apps, e-commerce platforms like Amazon, Flipkart, Alibaba, etc. Thus, Sprite too needs to successfully address and implement changes towards shifting preferences. If it is not very successful in implementing these digital changes, Sprite risks losing consumers too other competitors.

Technological Factors:

The technological factors in the PESTLE Analysis of Sprite are mentioned below:

The brand, and its parent company are at the forefront of tapping opportunities in the technological landscape. Sprite had launched the campaign - #needasprite. It was a digital campaign launched in South Pacific. It was an innovative campaign as it integrated Virtual Reality on a 360-video content. After playing the video for some time, consumers can control the viewing experience through Sprite’s Virtual Reality. Similarly, Coca Cola has more than 35 million followers on Twitter and close to 100 million Facebook followers. The company uses this data to know the background of the followers, his/her location, and their reason for brand preference. Such data helps the company use more targeted adverts. Despite this, if the company doesn’t successfully digitize its system, its sales and profitability are very likely to be affected negatively. It needs to keep finding new ways to create a better digital system.

Also, the company needs digitize operations by using data, AI, automation, robotics, etc to improve productivity and efficiency.

Following are the legal factors in the Sprite PESTLE Analysis:

The company relies on trademarks, confidential formulae and intellectual property rights to maintain its competitive advantage. Although, the company takes sufficient legal measures to protect its trademark on Sprite and other beverages, there is still the possibility that some entity illegally uses that trademark. Furthermore, there is a risk that the laws of the land may change to reduce the protection given by way of intellectual property rights. The brand collects personal data related to employees, and some consumers, in the normal course of doing business. Thus, it is subject to various US federal and state and foreign laws with respect to personal data. As these laws keep changing, the brand, too, has to comply with these changes accordingly.

Environmental Factors:

In the Sprite PESTLE Analysis, the environmental elements affecting its business are as below:

In recent years, there has been growing concern over the environmental impact of plastic bottles and other plastic packaging materials. Plastic is particularly harmful for the marine life. Sprite and its bottling units to sell some quantity in plastic bottles. Moreover, the brand uses packaging materials that are non-biodegradable. Although, the material can be recycled, there is low economic value and lack of adequate recycling infrastructure. These actions may lead to a negative public perception, which can damage corporate image and goodwill of the brand. Another factor that can affect sales of the brand are undesirable weather conditions in the countries it does business in. Very cold or rainy weather during summer season may temporarily affect the demand of the drinks.

This may even result in decrease in sales for the brand and affect its financial performance. Any unforeseen events like natural disasters, global or regional catastrophic events, or spread of highly contagious diseases could severely affect the demand of the brand. The recent Covid-19 outbreak is a prime example of contagious diseases, affecting the sales of the brand.

To conclude, the above Sprite PESTLE Analysis highlights the various elements which impact its business performance. This understanding helps to evaluate the criticality of external business factors for any brand.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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