For a Brief Moment in Time, Pepsi Was the 6th Largest Military in the World

Credit: Google Images

“I went to Nixon the night before, at the embassy, and told him I was in a lot of trouble at home because people thought I was wasting Pepsi’s money coming to a Communist country…I told him that somehow, I had to get a Pepsi in Khrushchev’s hand.”

Donald M. Kendall — CEO of PepsiCO from 1971 to 1986 — will go down in history as the first capitalist to introduce a Western consumer product to the Soviet Union. And for triggering a bizarre, almost unbelievable chain of events that lead to the soda’s eventual…militarization?

At the opening of the American National Exhibition in Skoloniki Park on July 24th, 1959 — the same night as the infamous “Kitchen Debate” between Nikita Khrushchev and Richard Nixon — Donald M. Kendall established a relatively small trade pavilion complete with fountain dispensers, memorabilia, and two different versions of Pepsi — one “made with American water, and another with Soviet water.” Little did he know that, in just a few short hours, his life — and the legacy of Pepsi abroad — would change forever.

The Glass Pavilion at the American National Exhibition in Moscow, a reciprocation of the Soviet National Exhibition in New York City a few months prior, featured a wide array of consumer brands significant to the U.S. economy — IBM, Cadillac, Disney, and RCA, just to name a few. PepsiCO, although a rising competitor to the behemoth which was Coca-Cola, was relatively unimportant by comparison — it had a recent history of filing for bankruptcy, rebranding, and its annual reported earnings were dwarfed by corporations like Disney — which was situated adjacent to the Pepsi booth.

“…there was a huge expectation and we didn’t know what would be there … everybody remembered Pepsi-Cola, it smelled like shoe wax …”

On the night of the National Exhibition’s opening, then-Vice President Richard Nixon and Milton S. Eisenhower — President Eisenhower’s younger brother — accompanied Soviet First Secretary Nikita Khrushchev to each of the pavilions after a long, tense day of state-sponsored tours around Moscow. As they walked between exhibitions — examining everything from abstract expressionist art by Jackson Pollock, to experimental geodesic domes, to booths established by 400+ American companies attempting to penetrate the Soviet marketplace — Nixon and Khrushchev engaged in a variety of contentious, almost scatterbrained arguments that are collectively remembered as the “Kitchen Debate” — although two-thirds of the discussion took place outside of the “American kitchen” display.

“…this was an exchange that emphasized the gulf between east and west but had little bearing on the substantive issues.”

Nixon and Khrushchev debated a wide array of tangentially related topics, ranging from rather serious matters of foreign policy — such as the Soviet intervention in the Hungarian Revolution of 1956 — to downright bizarre topics on “technological advancement”— like the size of Dixie Cups. However, as both the U.S. and Soviet media followed the pair from exhibition to exhibition, Khrushchev asked Nixon if their discussion could be translated to English and broadcasted in the United States, to which Nixon replied:

“Certainly it will, and everything I say is to be translated into Russian and broadcast across the Soviet Union. That’s a fair bargain.”

At that moment, the two agreed to formally debate.

The moved to a cutaway display of a “typical American kitchen” — complete with a dishwasher, refrigerator, and other household appliances that were not immediately familiar to the typical Soviet consumer in the late 1950’s. Here is where the debate became heated, transcending the reality of U.S.-Soviet relations and becoming an ideological discourse on the merits of capitalism and communism. While Nixon contended that the capitalist system of the United States was conducive to innovation and creativity, Khrushchev argued that a strict adherence to communism allowed the Soviets to effectively plan for multiple generations in advance.

Khrushchev was frustrated — visibly flustered on camera while drenched in sweat. Nixon suggested they move to the PepsiCo booth for a brief reprieve — where Donald M. Kendall was standing alone, waiting for the opportunity to introduce Pepsi to the Soviet leader.

This single moment lead to one of PepsiCo’s most significant points of publicity, with a perfect photo to capture the moment:

Credit: Alamy

Donald M. Kendall — a mere executive manager of international operations at PepsiCO — was met with such a positive response by its board of directors and CEO Alfred Steele that he was granted approval to pursue PepsiCo’s potential expansion into the Soviet Union. He succeeded in 1972, negotiating a monopoly contract with the administration of Leonid Brezhnev that locked out Coca-Cola from any possible trade negotiations until 1985.

Pepsi was produced and bottled locally — rapidly spreading throughout the Eastern Bloc to Romania, Poland, and Yugoslavia — where it became the first Western consumer product to be distributed on a mass-scale behind the Iron Curtain.

Communists loved their Pepsi.

In fact, they loved it so much that the Soviet Union alone consumed approximately 1.5 billion servings of Pepsi a year — more so than any market in the world at the time. Based on archival research of past annual earnings, PepsiCo reported an average post-tax income from the Eastern Bloc totaling somewhere in the realm of $500 million — roughly $1.5 billion by 2020’s standards. And, by 1990, commanded a 98% market share of the Soviet Union’s annual soft drink consumption — compared to Coca-Cola’s measly 2%.

Pepsi was featured in commercials on Soviet television broadcasts, it was not-so-subtly the focus of innumerable product placements in Soviet films, and PepsiCo even organized musical festivals — sponsoring a wide array of record deals for Soviet artists in the late 1980’s. Pepsi was the king of the Soviet marketplace.

However, no matter how popular Pepsi was — from the highest ranks of Soviet intelligenstia in Moscow to the disadvantaged Soviet citizens of Central Asia — there was always one issue that plagued the year-to-year manufacturing and distribution — money. The value of the Soviet ruble, not pegged to any resource or federal reserve, was unilaterally determined by the Soviet authorities. As a closed, isolated country, the Soviet Union was able to temporarily stabilize its currency by barring the ruble from being taken outside of the Eastern Bloc.

Once their reserves of U.S. dollars ran dry — and as domestic demand for Pepsi was skyrocketing — the Soviet Union opted for an unconventional system in order to secure the soda for many years in advance — bartering with Stolichnaya vodka.

Credit: AP

This strategy worked well for about five years. Stolichnaya was becoming increasingly popular in the United States under PepsiCo’s distribution, and the trade-off between a soft drink and vodka proved to be a mutually beneficial deal for both the United States and the Soviet Union. To this day, Stolichnaya vodka remains as one of the most popular imported vodka brands in the United States and Western Europe.

Everything changed in 1989.

In response to a three-year long boycott initiated by the American public in response to the Soviet-Afghan War, the value of Stolichnaya vodka and other Soviet-imported goods was dropping dramatically — as well as the actual volume of such trades. The Soviet Union could not keep up with the U.S. demand, nor could they unilaterally fund Pepsi distribution within their own borders. By the late 1980’s, the Soviet economy was crashing hard — as well as the value of the ruble — paired with internal factors, military interventions abroad, and poor bureaucratic reforms that eventually led to the Soviet Union’s collapse in 1991.

PepsiCo needed an alternative deal in order to maintain its near-monopolized market share in the Soviet Union and continue to cut Coca-Cola out of an opportunistic deal.

Thus, one of the most downright bizarre, confusing, but ultimately historic deals were made between PepsiCo and the Soviet Union — in exchange for doubling domestic manufacturing of Pepsi and securing five years of a monopoly deal, the Soviet Union traded PepsiCo an astonishing 17 submarines, a frigate, a destroyer, and cruiser, and two oil tankers. The latter of which was leased by Norway. A deal which, at the time, totaled to about $3 billion.

“We’re disarming the Soviet Union faster than you are.”

This deal, coupled with another $3 billion 1990 deal for Stolichnaya vodka, constituted the single-largest trade between a private U.S.-based corporation and the Soviet Union for the entire duration of the Cold War. In the same year, PepsiCo launched a new venture in the Soviet Union — Pizza Hut. That is a equally interesting tale for another time.

“This is the largest and most wide-reaching agreement ever signed in the field of consumer goods. This will generate more than $3 billion in retail sales in the Soviet Union and the United States.”

In exchange for the 1990 Stolichnaya deal, Mikhail Gorbachev pledged — aligned with the precedent from a year prior — to finance such a trade by constructing a 10 additional oil tankers and undisclosed number of military vessels. Upon the collapse of the Soviet Union, PepsiCo’s newly-constructed ships still remained at the Port of Sevastopol in Crimea, Ukraine.

Although the story ends somewhat anti-climatically, it will go down in history one of the most fascinating oddities of the Cold War and U.S.-Soviet foreign policy as a whole.

Upon the Soviet Union’s collapse, PepsiCo organized monopoly deals with all 15 of the post-Soviet states — and Russia remains as Pepsi’s second-largest market in the world. Pepsi is ubiquitous in the former Soviet Union, as well as its former satellite and successor states, and will remain that way for the foreseeable future.

Not much is known about the fate of PepsiCo’s “navy,” with rumors circulating that the vessels were sold to Sweden for scrap metal. Other rumors exist that they were transferred to the U.S. Department of Defense, bought out by Norway, or traded back to the Russian Federation, but none of these details can be independently verified.

But one thing remains true:

For a brief moment in time, Pepsi was a technologically advanced nuclear-capable power with the 6th largest military and the 3rd largest navy in the world.

Alexander Leslie is a foreign policy analyst, freelance journalist, and has an M.A. in Eurasian, Russian, & East European Studies from Georgetown University. His interests include U.S.-Georgia relations, energy politics, and studies in counterterrorism policy.

Contact: aejleslie@gmail.com

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