You may know that throughout the southern United States, any soft drink is called a “Coke.” But did you know that for many, any soft drink in eastern Europe and the former Soviet block is called a “Pepsi?”
That’s because Pepsi, in what was thought of as a huge coup, if not the deal of the century, was the first major soft drink brand to make it into the Soviet Union and Soviet-controlled market. Pepsi, in fact, was often the first American product that people living in Soviet-controlled economies ever encountered.
How It Got Started
In 1959, the USSR held an exhibition in New York, and the U.S. reciprocated in Moscow. At the exhibition, the U.S. showcased technology and culture and built a model home based on a “typical American house” that was filled with products from companies like Disney, Dixie Cup, IBM, and Pepsi. That was many Russians’ first taste of Pepsi.
The photos of U.S. President Richard Nixon and Soviet Premier Nikita Kruschev drinking Pepsi at the exhibition together became famous. While Kruschev was said to not be impressed by the beverage (he said it smelled like shoe wax), all members of the delegation remembered it, and many photos were taken and published.
The photo op and subsequent publicity turned into a huge deal for Pepsi, who parlayed it into an exclusive cola monopoly, blocking out Coca-Cola in the USSR until 1985. Pepsi was a pioneer. The only problem was that the USSR was cash poor.
The Soviet Union and Soviet citizens wanted to buy Pepsi, but the Soviet economy was in shambles and the ruble, the Russian currency, was basically worthless in global trade. This meant that the USSR and Pepsi had to begin a system of barter for Pepsi products.
The original deal was a trade; Pepsi sent cola to the USSR and the Soviets sent vodka back to Pepsico for the company to resell. This worked out very well for Pepsi. Stolichnaya, the brand of vodka that the Russians supplied, was very popular in the United States, and Pepsi had no problem selling it for a profit.
So What about the Submarines?
The naval deal needed to happen after the 1980s dual Olympic boycott and the additional economic boycotts that the U.S. and Soviet Union engaged in with regard to the Soviet Union after the Soviets invaded Afghanistan.
Americans weren’t buying Russian products, and it was increasingly hard (or even illegal) to sell Russian products in the United States. While the Russians still wanted Pepsi, Pepsi didn’t want Russian vodka anymore. That meant that the two sides needed to trade something else.
In 1989, they found that “something else.” The Soviet Union had a bloated military left from the Cold War and fleets of obsolete ships, equipment and other pieces of surplus items from the armed forces.
In the spring, Pepsi and the government of the Soviet Union signed an amazing deal that traded cola syrup for 17 submarines and three warships (including a frigate, a cruiser, and a destroyer). Pepsi, for the record, sold the ships for the scrap metal.
At this point, Pepsi’s CEO told President Bush’s national security advisor that the company was “disarming the Soviet Union faster than you are!”
And it was true that before the ships were scrapped, however, Pepsi briefly had the world’s sixth-biggest navy!
In addition to the ships and the deal to sell all the Pepsi, the company did also get the rights to push the Pizza Hut franchise through the Soviet Union as well (another branch of the far-reaching Pepsico multinational corporation, also owners of Kentucky Fried Chicken and Taco Bell).
This development further widened the reach of the corporation, proving that the era of political superpowers was coming to a close and the time for corporate superpowers was just ramping up.