Did Pepsi really own the 6th largest navy in the world?
The Cold War saw a battle of ideologies, Capitalism vs Communism. While the Soviet Union often looked for alternatives and local products, the Soviet love for Pepsi saw the USSR offer 20 warships in return for the sugary drinks. This is said to have made Pepsi the 6th largest navy in the world at the time.
In 1959, then-Vice President Richard Nixon and Soviet Premier Nikita Khrushchev both attended the American National Exhibition in Moscow’s Sokolniki Park. The two men exchanged words claiming the efficacy of each nation’s respective economic model, often referred to as the “kitchen debate“. Head of Pepsi International Donald Kendall, who was also present, decided to offer some small cups of Pepsi in order to break the ice.
Khrushchev enjoyed the drink so much that a deal was struck for the Soviets to begin receiving shipments of the beverage. Pepsi had secured the first ever agreement between a capitalist American company and the communist Soviet Union. However, there was a problem, the Soviet Ruble was a closed currency, and outside the Soviet Union it was worthless, meaning companies could not exchange it for dollars, therefore, preventing any company taking their profits out of the country.
However, the Soviet Union did contain a drink of their own, vodka. So Pepsi and the Soviet Union made a deal: Pepsi would provide shipments of soft drinks, and in return, the Soviet Union would provide vodka for resale in the United States. This was the first capitalist product available in the U.S.S.R.
The agreement between the Soviet Union and Pepsi stood without any issue, even locking out Coca- Cola, but by 1980 geopolitics hampered the deal. The Soviet Union had invaded Afghanistan, and the American people responded by boycotting Soviet-sourced products, including the Stolichnaya Vodka which Pepsi was getting in bulk as part of the deal for their soda. Soviet vodkas sales had dropped enough for Pepsi to no longer consider the deal worthwhile as they were making a loss.
However, just because the current deal was not profitable, Pepsi wasn’t about to abandon its foothold within the Soviet Union. If anything, Pepsi decided to keep growing its Russian business. They went so far to use Michael Jackson, whose Russian language ads aired across the USSR.
In May 1989, the New York Times reported that: “PepsiCo recently bought from the Soviets 17 submarines (for a measly $150,000 each), a cruiser, a frigate and a destroyer. They are being resold for scrap. It has also bought new Soviet tankers (to carry oil, not beverages) in a joint venture with the Soviets and a Norwegian company that will lease them out or sell them.” In a conversation with Brent Scowcroft, the national security advisor to President George H.W. Bush, Kendall joked, “We’re disarming the Soviet Union faster than you are!”
This agreement seems to be the origin of all the “Pepsi has the sixth largest navy in the world”. Despite popular belief, the proposed deal from the Soviet Navy never actually went through. Instead, a $3 billion agreement was reached that would’ve seen Soviet shipyards build at least 10 commercial vessels for Pepsi that will then be sold or leased in the international markets. However, this deal also fell through. The reason for this is that the Soviet Union collapse in late 1991. Pepsi would have to start again and negotiate with each country respectfully in order to sell their drinks.
Pepsi was not satisfied with their current position and wished to push their other franchise, Pizza Hut, to the newly open market of Russia. Pepsi wished to use the selling of the tankers to finance its Pizza Huts and new bottling plants which were now in independent Ukraine. Their marketing campaign was so successful that Pepsi was forced to restructure their contracts and increase their vodka sales in order to generate enough capital to meet the demand for Pizza Huts in the former USSR.
The roll out of the fast-food chains was rushed and didn’t go as smoothly as Pepsi would’ve hoped. For instance, the post-Soviet economic crisis forced Pizza Hut to increase its prices by 50%. Furthermore: “Pizza Hut’s first major stumbling block resulted from failing to screen all employees for venereal disease, and had to be temporarily shut down.”
Despite these initial problems, the blue, white and red symbol of Pepsi and American capitalism established itself in the Russian market. Russian adoration of Pepsi was so strong that in 2004 Vladimir Putin awarded Donald Kendall with the Russian Order of Friendship. Vladamir Putin even said he was hoping for some practical advice from Mr Kendall on developing Russian-U.S. trade and economic relations.
Pepsi’s endeavour to sell its fizzy drinks to the Soviet Union was certainly unconventional. Unfortunately however, there were no submarines or warships included.