Pepsi’s military ascendance began in the throes of Cold War tensions.
Nikita Khrushchev had just taken power after Stalin’s death. He was eager to quell the escalating nuclearization, spying, and threats between the two nations. Internally, he also wanted to improve the lives of his citizens. He’d already taken steps to ease government cruelty, including the discontinuation of the gulag.
In 1959, an agreement was reached to hold an American National Exhibition in Sokolniki Park, Moscow (a Russian equivalent would later be held in the U.S.).
If you lived in the Soviet Union at the time, this was a rare opportunity to see what capitalism and American culture were like. More than 450 American companies would display their products for all to see:
The festival also included a model middle-class house with microwaves and dishwashing machines that you could walk through to get the full American experience. More than 3 million Russians would visit by the end of the event.
Unfortunately, a debate broke out in the sample house between Vice President Nixon and Nikita Khrushchev. This came to be known as “the kitchen debate.”
They argued the competing benefits of communism and capitalism. After things got a bit heated in front of the cameras. Nixon invited Nikita Khrushchev to go have a drink in the side room to break some of the tension.
They went to a fridge that was full of Pepsi. They cracked it open and Krushchev took a sip — and his face lit up.
He’d never tasted anything like it. He waved all of his contemporaries over to try it. They came to love it and the scene read like a real-life Pepsi commercial.
Fast forward: Pepsi gets a special deal for sole distribution to the Soviet Union, the first large American business to do so, and to the exclusion of Coke. This continued for years — but it wasn’t a normal agreement.
First, Pepsi had to negotiate and sell directly to the Soviet government, who then resold to their people. Second, because the ruble was effectively useless for international trade, they had to barter.
They reached an agreement to trade vodka for Pepsi. And so began a long-running partnership. This is how vodka first reached much of the masses in the United States.
Then, in the 1980s, there were economic problems in the Soviet Union, which would contribute to its epic downfall in 1991. During that time, they weren’t able to provide the vodka needed to get adequate Pepsi distribution, which was a problem because, by this point, Russians loved Pepsi. They were consuming billions of cans per year.
So an alternative payment method was offered: military vehicles.
The first year, they traded several battleships. The second year, they traded a monumental $3 billion in navy ships including 17 submarines, a battleship, a cruiser, and a destroyer. Additionally, Pepsi was allowed to build three new manufacturing plants in the Soviet Union.
Unfortunately, this was a very “Instagram vs reality” moment for Pepsi. They didn’t get this:
They got this:
So by mere unit count, they had the sixth-largest fleet at the time. But it wasn’t exactly battle-ready, though some of their equipment was quite capable.
Pepsi had done an appraisal on the scrap metal value and baked that into their deal, though many think the ships were worth far more than $3B. Pepsi also got Russian oil tankers through a tangential deal, which they used to finance the construction of Pizza Huts (owned by Pepsico) throughout Moscow.
This transaction caught the eye of U.S. military leaders who expressed concern over a soda company toting around so much military equipment. The CEO of Pepsi, Donald Kendall, replied, comically, “I’m dismantling the Soviet Union faster than you are.”
One can’t help but imagine a rogue employee or two mounting a skull and Pepsi logo on these ships and going full pirate. Perhaps that will be my next screenplay.
Unfortunately, the deal went to all hell when the Soviet Union collapsed in the middle of the transaction and only some of the ships could be transported. A number of them then got trapped in the Ukraine shipyards and were held hostage by the local government who wanted a piece of the action. It would take Pepsi several years to complete the deal as they suddenly had to contend with a dozen satellite nations rather than just the USSR.
This was a risk Pepsi took, though. They knew their customer had a significant risk of bankruptcy.
You know your economy isn’t doing well when you’re trading battleships for soda cans.