The Legend of the Pepsi Navy
In 1989, in one of the more unique business deals in the history of consumerism, Pepsi and the Soviet Union struck a deal for the communist country to provide the soft drink provider with $3 billion worth of warships: 17 submarines, a cruiser, a frigate, and a destroyer.
Capital Thinking · Issue #987 · View online
In 1989, PepsiCo Inc., the maker of Pepsi, acquired 17 submarines, a cruiser, a frigate, and a destroyer from the Soviet Union.
In recent years, an internet legend has grown up around this deal, which holds that Pepsi briefly possessed the sixth-largest fleet in the world.
-Paul Musgrave, ForeignPolicy.com
How the CEO of Pepsi, by bartering battleships and vodka, negotiated Cold War diplomacy and brought his soda to the Soviet Union
At the height of the Cold War, as diplomatic relations between the US and the Soviet Union fluctuated between complicated and downright hostile, the CEO of Pepsi quietly embarked on a one-man mission to establish a line of trade between his company and the notoriously guarded Communist superpower.
The executive, Don Kendall, had risen quickly in the company’s ranks, becoming CEO at age 42 after beginning his career on a bottling line at a Pepsi-Cola plant.
Kendall understood that Pepsi needed to grow, and the simplest way to do that at the time was to break into new countries.
Coca-Cola dominated soda sales throughout Europe, as the US Army had essentially brought Coke everywhere it went during World War II. As a result, Kendall sought untouched markets where Pepsi could gain a foothold.
Within six years, he had doubled the company’s international footprint, expanding its reach from 60 countries to nearly 120.
But for decades, as Business Insider’s Sarah Wyman details in the latest episode of “Brought to You By …,” there had been one country Kendall desperately wanted to get into: the Soviet Union.
The USSR represented a massive, untapped source of business, but its communist economic policies made it a challenging business partner.
On top of these difficulties, the Soviet Union and the US had few formal channels of communication, making establishing any kind of business nearly impossible.
Still, Kendall was determined to make a deal happen.But there was one big problem. The Soviet currency, the ruble, couldn’t be exchanged or translated into other money.
As a result, Kendall and Pepsi had to devise a way to receive payment for the Pepsi plants they were going to build in the country. The two parties decided on a barter agreement, where the Soviets paid for their Pepsi by trading a resource they had a surplus of: vodka.
“So we decided to bring Stolichnaya, the Russian vodka, over here,” said Kendall. “That’s how we got our money out, we got into the vodka business.”
Over the next two decades, Pepsi flowed in the Kremlin, and millions of Americans threw back Stolichnaya for the first time, an exchange both parties approved of.
By 1989 though, Pepsi officials realized they were selling about as much Stolichnaya as they could, so they needed a new way to receive payment for the growing Soviet demand for their soda pop.
In 1989, in one of the more unique business deals in the history of consumerism, Pepsi and the Soviet Union struck a deal for the communist country to provide the soft drink provider with $3 billion worth of warships: 17 submarines, a cruiser, a frigate, and a destroyer.
The following year, Pepsi and the USSR made another deal along the same lines, this time for oil tankers and freighter ships.
About the Author Mark Stenberg