It is well know there are some corporations that have more money than organized nations, but far more unusual is for a company to have a Navy, but Pepsi Did.
The Soviets first got acquainted with Coca-Cola in the 1930s, when an official delegation visited America.
Colonizing the USSR with the iconic U.S. brand was deemed too expensive at the time, but there was an idea to set up production lines with completely different ingredients.
Instead of coca leaves Georgian tea was proposed. However, the new drink – Ruscola as it was dubbed – would never see the light of day.
Coca-Cola seemed destined to enter the Soviet market – but old rivals PepsiCo were to beat the company to it.
After World War II, Coca-Cola had a chance to get inside the Soviet bloc thanks to a famous personality.
Marshal Georgy Zhukov, one the war’s most famous Soviet generals, had developed a taste for Coke, after being introduced to the fizzy concoction by Allied forces commander General Dwight D. Eisenhower.
Zhukov, however, couldn’t openly drink an American branded drink. He asked the company to create a special Cola, colorless like vodka, and not in such a “funny-looking bottle.”
Soon he got dozens of bottles of White Coke, topped with a red star on the crown cap.
Zhukov didn’t try to promote Coca-Cola in the USSR, preferring to keep it for personal use only.
After Joseph Stalin’s death, there was a brief lax of aggression between America and the Soviet Union opening a path for exchange.
After Stalin died in March 1953, Nikita Khrushchev quickly became head of the Communist Party and premier in the USSR.
Once a loyal Stalinist, Khrushchev gave a long speech in February 1956 that criticized Stalin for arresting and deporting opponents, for elevating himself above the party and for incompetent wartime leadership, among other things.
He had started a program called de- Stalinization, to open the borders a bit and allow trade improve the Russian economy.
Khrushchev had a complicated relationship with the West – he held fervent believer in communism, he nonetheless preferred peaceful coexistence with capitalist countries.
Still his vision for the future of the Soviet Union was quite different from his predecessor’s ,unlike Stalin, Nikita wanted to reform the country and to actually improve the lives of the population.
He decided to end the Gulag system of labor camps and to open up the country’s borders so that citizens could travel and see the world.
The ultimate expression of his liberal policies was the ambitious decision to host an American National Exhibition right back home in Moscow and a counterpart Soviet Exhibition to be held in New York.
The US government was happy to oblige, and in the summer of 1959 the Americans brought in an impressive array of items: from art & tv sets to automobiles and fashion.
The US was excited to show the merits of capitalism to the USSR, and it spared no effort in doing so. It even went so far as to build a model house to showcase just how well off the average American was living.
Over the course of 6 weeks, 3 million Soviet citizens would visit the exhibition. Since the the true purpose of the exhibition was to open up the Soviet Union to international trade, the American government supplied the exhibition with the products of 450 American companies, who were very eager to do business with the USSR.
And you guessed it, Pepsi was among the first in line to support this radical endeavor. In fact, the day before the exhibition opened, Donald Kendall, the head of Pepsi’s international division, approached his friend then-Vice President Nixon with a simple request.
Nixon had to get a Pepsi into the hands of Nikita Khrushchev. The very next day at the exhibition’s opening, Nixon welcomed Khrushchev at the site of the model house’s kitchen and there the two men engaged in a fierce but friendly debate on the merits of communism and capitalism.
This exchange came to be known as the “Kitchen Debate”, at this point the crow was very hot and sweaty, so immediately after the debate Nixon led Khrushchev to a refreshment booth filled with nothing but Pepsi.
Nixon offered a Pepsi to Khrushchev which was reprinted all over the world – what we would call today viral marketing.
Nixon actually tricked Khrushev, asking to taste two types of Pepsi: one made in the U.S., and one made in Moscow (our guess is that the Americans brought concentrate to Moscow and added local water).
Of course, the Soviet leader preferred the latter and then promoted it to everyone at the exhibition, although some described Pepsi as “smelling like shoe wax”.
The press went crazy and published photos of Khrushchev holding a Pepsi with the caption, “Khrushchev wants to be sociable,” which was a reference to Pepsi’s slogan in the U.S. at that time: “Be sociable, have a Pepsi.”
Khrushchev was already “at the top of the pyramid”, but in the following years both Nixon and Kendall are able to get rid of the “vice” prefix of their title, becoming both presidents.
The first of Pepsi Cola already in 1963 and the second of the United States in 1969. Three years later Kendall uses his friendship with Nixon and his political influence to capitalize on the Kitchen Debate success and start selling Pepsi Cola in the USSR.
In any case, this colossal PR victory catapulted Donald Kendall through the ranks at Pepsi and within 4 years he had become the company’s CEO.
His prime focus was making Pepsi available to the average Soviet citizen, but trade with the Soviet Union was much harder than you’d imagine. You see, the Soviet ruble was essentially worthless outside the USSR.
The Kremlin determined its value it’s money, which made it illegal not only to trade them internationally, but also to take the currency abroad.
So Pepsi had to find someway of monetizing the drink.
The solution was to use barter (trade in products as opposed to money) .
Pepsi concentrate was swapped for Stolichnaya vodka and the popular spirit’s U.S. distribution rights : for every bottle of Pepsi sold, the Pepsi company would receive an equivalent amount of Stolichnaya vodka to be sold in America.
Therefore, a barter deal was made whereby Pepsi concentrate was swapped for Stolichnaya vodka and the right for its distribution in the U.S. – liter per liter.
Both will have a huge success and for a number of years the nickname “Stoli” used for ordering Stolichnaya becomes synonym for vodka in the USA.
Negotiations to bring Pepsi to the Soviet Union took more than a decade: the drink only arrived in 1972, when PepsiCo started supplying concentrate and equipment for future factories.
According to the agreement, PepsiCo started to supply concentrate and equipment for 10 future production plants where concentrate was to be diluted, bottled and distributed across the country.
Originally, it was expected that the first plant would appear in Sochi, but due to the lack of fresh water sources nearby it was decided to build it in Novorossiysk.
When the plant opened, Soviet people often would visit Novorossiysk with two goals:
a holiday on the Black Sea, and to try Pepsi.
The first Pepsi plant opened in Novorossiysk on the Black Sea coast in 1974.
In 1973-1981, as many as 1.9 million decaliters of Stolichnaya vodka worth $25 million was shipped to the U.S., and 32.3 million decaliters of Pepsi was produced, earning the Kremlin 303.3 million rubles.
This is how Pepsi became the first capitalist product sold in the USSR and the deal turned out surprisingly well: by the late 1980s the Soviets drank a billion servings of Pepsi per year.
The price for a bottle of the American soft drink was twice the cost of Soviet drinks (lemonad was 10 kopecks), and one could buy a 0.33 liter bottle for 45 kopecks, and then return the glass bottle to get 10 kopecks back.
The barter deal with the USSR only allowed the company to profit from vodka sales in the U.S. – it didn’t benefit from Pepsi sales in the Soviet Union.
But Americans could only drink so much vodka, so eventually Kendall had to figure out a different medium of exchange.
Following the American reaction to Soviet intervention in Afghanistan in 1979, the sales of vodka plummeted and PepsiCo started to look for something else to barter.
In 1989, the commercial agreement between the Pepsi Corporation and the USSR is about to expire and negotiations to sign a new one begin.
The new trade contract was worth a whopping 3 Billion USD and it was obvious that the amount couldn’t be all payed in vodka this time.
Besides, Russia at the time suffered from severe shortages of pretty much anything, and that included vodka itself, which was not any longer produced in the quantities of 20 years earlier.
Russian people, who as a rule are not big fans of Gorbachev sometimes argue that the shortage of vodka was due to the incalculable amount of the liquid that Gorbachev himself drank…
The Soviet Union was not about to give up it syrupy drink from the West and again it found a solution against all odds.
The company founded a peculiar way to continue its business – Soviet warships.
It turns out that in 1989’s money 3 Billion Dollars is equivalent to:
– 17 submarines
– 1 Cruiser
– 1 Frigate
– 1 Destroyer
In May 1989, Pepsi bought 17 submarines (for $150,000 each), a cruiser, a frigate and a destroyer, which all were later resold for scrap.
Plus, the company bought new Soviet oil tankers and later leased them or sold them in partnership with a Norwegian company.
For a brief moment, Pepsi had become the 6th largest navy in the world, until it turned around sold everything for scrap, which was the original goal,
This obviously didn’t sit well with the Feds, so when confronted about the exchange by the US National Security Advisor.
It was then that Kendall famously remarked, addressing U.S. national security adviser Brent Scowcroft, ” I’m disarming the Soviets Union faster than you are!”
Just a year later Kendall arranged an even more ambitious plan: he’d hire the USSR to build 10 oil tankers for him in exchange for about a billion dollars worth of Pepsi.
The media called it the “Deal of the Century” … but then, the Soviet Union collapsed.
In the midst of hyperinflation, redrawn national borders and a very corrupt process of privatization, Pepsi would stand to lose everything.
Pepsi’s massive trade arrangement turned into a frantic scramble to salvage its Russian assets.
The USSR had split up and suddenly, they had to negotiate with 15 different new countries, and not all of them were willing to cooperate.
Despite Kendall’s hopes that this would foster PepsiCo’s further expansion in the country, the collapse of the Soviet Union ruined his plans and the company never claimed the ships.
They were located in a newly independent Ukraine that wanted to bargain something for itself.
Over the next year Pepsi would scramble to reclaim its assets, and in the midst of this chaos, one company would make a very opportunistic move.
Coca-Cola bosses had watched Pepsi become the first American brand to take root in the Soviet Union and were jealous that the massive, potentially lucrative Soviet market was eluding them.
So, Coca-Cola CEO J. Paul Austin parlayed (negotiated) his friendship with U.S. President Jimmy Carter to get direct access to Soviet leaders, while PepsiCo struggled to hold on to its market share in Russia.
In the wake of Pepsi’s struggle, Coca Cola entered the Russian market aggressively.
They bought out factories for cents on the dollar during the privatization and went so far in their marketing that they sent specialized Coca Cola cans to the Russian space station.
As a result of their talks Coca-Cola finally came to the USSR.
The Moscow Olympics of 1980 presented Coca-Cola with a golden opportunity.
Although the U.S. declared a boycott of the games following the Soviet invasion of Afghanistan, Coke ignored it, pointing to the fact that it had been sponsor and partner of the Olympics since 1928.
As a multinational company it was above politics, it added. Thus Coca-Cola became the main drink of the Moscow Games.
With Coca-Cola’s entrance into the Soviet market in the late 1980s, the struggle of the fizzy drinks behemoths heated up.
PepsiCo was the first foreign corporation to start advertising on Soviet TV, with spots featuring Michael Jackson.
Then Coca-Cola became the first foreign company to place an advertising banner on the roof of a downtown Moscow building.
Unsurprisingly, Coke’s massive campaign paid off: by 1996 it had overtaken Pepsi as Russia’s most popular cola.
Nevertheless, today, Russia remains Pepsi’s largest market outside the US and despite the setback in the early 90s the Pepsi Company is as profitable as ever.
In the end, while Coca Cola might be more popular than Pepsi today, it is Pepsi that truly conquered the Soviet Union.
Want to know more about life in the Soviet Union and daily habits in those times? Check out 10 things you can only understand if you lived in the USSR.