How it happened that the Soviet Union exchanged warships for Pepsi

2024 Author: Richard Flannagan | [email protected]. Last modified: 2023-12-15 23:55

Pepsi is the undisputed global soft drink giant. It has long been firmly rooted in the Russian market. It started back in the early 1970s, when Russia was part of the Soviet Union. It was the first swallow of the hostile capitalist world to enter the communist market. At that time, the rivalry between the two countries was so fierce that it becomes unclear how the American company managed to do this?

The history of Pepsi's penetration into the Soviet market began back in 1959. Then the Vice President of the United States, Richard Nixon, came to the Soviet Union for the exhibition. It took place in the Sokolniki Park in Moscow. There he met with the General Secretary of the CPSU Central Committee, Nikita Khrushchev.

The Americans jointly with the Soviet Union organized a national exhibition. Its purpose was to promote American goods, art, fashion and, of course, the ideas of capitalism. A model of an American house was specially equipped and presented at the exhibition. It was equipped with the most modern appliances and all kinds of amenities. There were such miracles unseen by ordinary Soviet citizens as a color TV, a vacuum cleaner, and a washing machine.

Standing in the middle of a sample of American cuisine, the leaders of the two rival countries debated the merits and demerits of the communist and capitalist regimes very hotly. Nixon told Nikita Khrushchev: “Your country is planning to get ahead of ours. This is especially true for the production of consumer goods. I hope that our competition can improve the lives of not only our peoples, but also people around the world. I believe that free exchange of ideas is essential for us. Later, the American president took Khrushchev to a booth selling Pepsi. He handed him a glass of this sweet soda, which had never been tasted in the land of the Soviets.

The Pepsi kiosk featured two different variations of this sweet soda. One, as they say, on American water, and the other was mixed from concentrate, on Soviet. Khrushchev said that the one made in native water is clearly better and much more refreshing. When Khrushchev drank, he insisted that the comrades gathered around him also try the miracle drink. The photographers who were present there instantly flashed the flashes of their cameras.

The press just went crazy! Photos of Khrushchev with Pepsi and the inscription "Khrushchev wants to be sociable." This was a direct reference to the Pepsi slogan in the US at the time: "Be sociable, drink Pepsi."

No amount of fabulous advertising costs could have brought the company as much attention as these historical photographs did! The photographs have been published in media around the world. Pepsi couldn't even dream of such an advertising campaign! As a result, in 1965, Kendall from the head of the PepsiCo corporation turned into its CEO. His role in the events of 1959 cannot be overemphasized.

The synergy between Nixon, who took Khrushchev to the Pepsi stand, and Kendall, who served the addictive drink, was not an improvisation. It was Kendall's idea, as was Pepsi's participation in the show. This was done against the wishes of his superiors. The fact is that the company's management was convinced that trying to sell an American product to a communist country was a waste of energy, time and money. The evening before the show, Kendall met with his old friend, Nixon. They have long been linked by strong friendly relations. Kommersant asked the president to hand a glass of the drink directly into the hands of the Soviet leader.

Kendall managed to conclude an exclusive deal with the Soviet Union in 1972. This happened thirteen years after the epoch-making events described. The agreement prohibited Pepsi's main competitors, the Coca-Cola Company, from all access to the Soviet market. In all this, however, there was only one snag. Soviet currency was absolutely useless outside the USSR. It did not have any functions of a real currency in a market economy. The Soviet ruble could be considered some kind of corporate vouchers or tokens. The value of this monetary unit was not determined by the market, but was established and regulated by the state. It was necessary to come up with some kind of alternative payment system. Good old barter came to the rescue! The Soviet Union acquired the rights to sell and produce Pepsi, and in return Pepsi received exclusive rights to the Stolichnaya vodka brand.

Pepsi is the owner of the title of the first capitalist brand that was not just sold, but produced in the USSR. Under the agreement, PepsiCo began supplying the necessary equipment and beverage concentrate for ten future factories. There, on the spot, the concentrate had to be diluted, bottled and distributed to retail outlets throughout the Union.

One worker of the plant in Novorossiysk recalled this time as follows: “Each worker had an individually sewn uniform. She was very pretty. We were like doctors. We had white hats and robes. It was a great honor to work at this plant. Then it was considered incredible luck to get a job there, it was prestigious.

PepsiCo CEO Kendall said it was the best and most modern plant in the world. The plant was built in the shortest possible time, even in record time - in just eleven months. It just amazed Kendall then.

The first plant was initially planned to be built in Sochi. Suddenly there was a problem with the water. There were no fresh water sources nearby. Therefore, the palm went to Novorossiysk. When the plant began its work, all Soviet citizens were eager to come here. Here you could not only relax on the Black Sea, but also taste the coveted Pepsi. By the end of 1982, seven more factories appeared: in Moscow, Leningrad, Kiev, Tashkent, Tallinn, Alma-Ata and Sukhumi.

The price for a bottle of Pepsi was twice the price of any Soviet non-alcoholic drink. Despite this, the Pepsi market grew, sales grew by leaps and bounds. Already at the end of the eighties, the company had more than twenty factories in the USSR. Soviet citizens drank almost a billion servings of Pepsi a year. It was, of course, much more than the Americans drank Stolichnaya vodka. Due to the limited American vodka market, Kendall had to start looking for other Soviet products suitable for barter. Just a brilliant idea came to the rescue: warships decommissioned by the Soviet Union!

In 1989, a new agreement was signed by Kendall. Under this agreement, the Soviet Union handed over an entire armada to Pepsi. It consisted of a cruiser, destroyer, frigate and as many as seventeen submarines! Many joked back then that Pepsi owned the sixth largest fleet in the world at the time. These ships, of course, were unsuitable for exploitation. The company just scrapped them. Each submarine brought PepsiCo $ 150,000 in net profit. "We are disarming the Soviet Union faster than you are," Kendall quipped once in a conversation with Brent Scowcroft, President George W. Bush's national security adviser.

A little over a year later, PepsiCo managed to conclude another, unprecedentedly large deal with the Soviet Union. Its terms assumed more than three billion dollars in profit. In return, the Soviet Union had to build a dozen ships, mostly oil tankers. PepsiCo planned to either lease them or sell them on the international market. It was, without a doubt, a landmark deal. Unfortunately, it was not destined to take place. Less than a year later, the Soviet Union collapsed.

Now the company suddenly had to deal with fifteen states instead of one. The ships were in the newly independent Ukraine. They also wanted to bargain for something for themselves. To make matters worse, PepsiCo's main competitor, Coca-Cola, has now entered the market. Now the company has had to struggle to maintain its market share in Russia.

Today, Russia is still a huge sales market for Pepsi outside the United States, ranking second in the world. True, now the majority of Russians still prefer the products of competitors from Coca-Cola. PepsiCo's share of the Russian market is more than a modest eighteen percent. Compared to their competitor Coca-Cola, their number is twice as high. Pepsi now sells less than many local drinks.

Today, Pepsi has, albeit not large, but rather strong positions in the Russian market. The company manufactures a very wide range of products there. Despite this, from time to time Russians remember with incredible nostalgia the very unique taste of Soviet Pepsi in a glass bottle. Many people say that it tastes much better than today because plastic spoils the taste. Recently, one lucky owner of an original Soviet-era Pepsi bottle offered to sell it for a record 6,400 rubles ($ 110). The product, of course, has already expired, but still a nice find for lovers of vintage things!

If you are interested in the history of the USSR, read our article about how a modest housewife from the English provinces turned out to be a Soviet super agent who could kill Hitler.