On the 9th of April, 1990, the media in the US reported on a strange deal that had taken place between Pepsi and the Soviet Union; American Pepsi in exchange for Soviet warships.
This odd situation came about due to the lack of worth of Russia’s currency, the Ruble, as its price was governed by the Kremlin and practically worthless outside of the US. The Soviet Union had for some time traded using Stolichnaya vodka, a popular product in the United States, but after a trade embargo restricted Russian imports, they decided the price would be 10 Russian warships.
Pepsi obviously never used their naval assets, instead scrapping them for the price of the parts, but it is an interesting story about how the biggest of rivals traded goods in the midst of the Cold War.
The story began in 1959 when the USSR held a rare cultural exhibition in New York and the Americans did the same in Moscow. The cultural exchange was intended to improve relations and show the other side how each nation lived. The American National Exhibition in Moscow featured American products such as cars, art, fashion, and even an entire model American house. Brands such as Disney, IBM and Pepsi had stands at the show, looking for new opportunities.
Soviet leader Nikita Khrushchev was shown the American products by then-Vice President Richard Nixon, and in a media coup, Nixon managed to get Khrushchev pictured whilst drinking Pepsi. The scene was incredible; 2 of the most powerful men in the world drinking Pepsi in a mock-American kitchen, trading jokes about each other’s nation. The night before, a Pepsi executive, Donald M. Kendall, had approached Nixon at the embassy and pleaded with him to take the chance.
A few years after the exhibition, Kendall became CEO after the success of his brand placement idea. The Russians first thought Pepsi smelled like shoe wax, but within a decade their appetite for the sugary drink was insatiable. In 1972, he succeeded in negotiating a cola monopoly and locking out Coca-Cola until 1985. Cola syrup began flowing through the Soviet Union, where it was bottled locally. Pepsi became the first capitalist product of the USSR, but the only issue was Russian payment. Soviet law prohibited Russian money from leaving its borders so the USSR and Pepsi would trade for goods to sell. At first they traded for Russian vodka, which always sold well, but after a boycott caused by the Soviet-Afghan war, they needed something else.
And so a remarkable deal between the Soviet Union and Pepsi was signed. Pepsi became the owner of 17 old submarines and three warships, including a frigate, a cruiser, and a destroyer, which the company then sold for scrap.
“We’re disarming the Soviet Union faster than you are,” Kendall quipped to Brent Scowcroft, President George H.W. Bush’s national security adviser.
The success of the agreement paved the way for the 1990 deal. It was the largest ever deal between an American company and the Soviet Union, and Pepsi hoped it would send them to new heights. Instead the deal was a disaster which left them scrambling to protect their assets. Its cause? The fall of the Soviet Union. The deal fell apart in the midst of the complexities of redrawn borders, inflation, and privatization. The Pepsi fleet was stranded in newly-independent Ukraine, which wanted a cut of the sales and they had to work with 15 different nations to put things back together. Coca Cola had also entered the fray, selling their product to new nations and clawing at Pepsi’s advantage. Coca Cola eventually overtook Pepsi as the most popular brand, but then again, they never owned a warship.