The article is written by Daniel Maikowski, a journalist for Gazeta.pl.
"We are disarming the Soviet Union faster than you are," joked Donald M. Kendall, the head of Pepsico, during a courteous conversation with President George H.W. Bush's advisor. This joke held a grain of truth. By the late 1980s, the company selling sweetened beverages briefly became one of the largest military powers in the world. How did this happen? It was all due to the Russians' boundless love for Pepsi.
Khrushchev drinks an imperialist beverage
Our story begins in 1959 when then-U.S. President Dwight Eisenhower, as part of an effort to improve relations with the Soviet Union, decided to organize a special exhibition in Moscow to introduce comrades behind the "Iron Curtain" to American culture. The exhibition was attended by none other than the First Secretary of the Communist Party of the Soviet Union, Nikita Khrushchev, and U.S. Vice President Richard Nixon. The two men engaged in lively discussions while viewing cars, refrigerators, computers, washing machines, and other marvels of American technology.
At one point, Nixon led Khrushchev to a small booth where Pepsico was showcasing its products. There, they were greeted by Donald M. Kendall, who was serving as the company's marketing director at the time. Kendall didn't hesitate to offer the thirsty and sweaty Khrushchev a cup of chilled Pepsi, and the Soviet dignitary reportedly fell in love with the taste of the "imperialist" drink on the spot.
However, Khrushchev's son, Sergei Khrushchev, had a different memory of the unusual taste of Pepsi, recalling that when he first tried the drink, it smelled like "shoe polish". Apparently, he was not alone in his opinion.
It soon became apparent that the meeting with Kendall was a setup. The night before, Kendall had visited the U.S. embassy and told Nixon that he must do everything to "put a cup of Pepsi in Khrushchev's hand." The mission was accomplished, and the photo of Khrushchev sipping the sweet beverage went viral worldwide.
Pepsi for vodka
Ordinary citizens of the Soviet empire had to wait at least 13 more years to get their first bottle of Pepsi. In 1963, Donald Kendall was promoted to the position of CEO of Pepsico and began looking for a way to enter the Soviet market with the drink, all while trying to outmaneuver his great rival - Coca-Cola.
On November 16, 1972, Kendall achieved his goal. He signed an unprecedented contract with the Soviet government, making Pepsi the "first capitalist commodity" legally available in the Soviet Union.
There was just one problem: How would the Russians pay for Pepsi? It's important to remember that at that time, the USSR had no access to foreign currency, and the ruble was nonconvertible. The solution turned out to be Stolichnaya vodka. Under the agreement, Pepsico became the distributor of the famous vodka in Western markets.
In 1974, the first Pepsi factory opened in Novorossiysk, and mass production for the Soviet market began five years later. The Russians quickly went crazy for the drink. By the late 1980s, they were consuming over a billion servings of Pepsi annually. In 1988, Russians were also able to watch the first Pepsi TV commercial - starring Michael Jackson, of course.
Coca-Cola executives could only watch Pepsi's actions with envy. In the 1970s, Coca-Cola was distributed in 100 countries worldwide, but not in the USSR. It didn't enter the Russian market until 1992 - after the actual dissolution of the Soviet Union.
Pepsi becomes a military power
From Pepsico's perspective, the agreement with the USSR made financial sense as long as Stolichnaya was selling well in the U.S. market. For a long time, that was the case, as Americans fell in love with the famous Russian vodka just as much as the Russians loved Pepsi.
However, things began to change dramatically in the late 1980s. The prolonged Soviet military intervention in Afghanistan caused American consumers to turn away from Soviet products, and sales of Stolichnaya vodka began to decline.
Yet even this problem was solved. In May 1989, "The New York Times" reported one of the strangest transactions ever.
Pepsico bought 17 submarines, a cruiser, a frigate, and a destroyer from the USSR. Additionally, Soviet tankers were also handed over to the Americans, to be leased or sold. This bizarre transaction allowed Pepsi production in 21 factories across the Soviet Union to continue, and the American company was already planning to open 26 more bottling plants.
For a brief moment, Pepsi became the world's sixth-largest military power in terms of the number of submarines owned. However, this didn't last long, as the equipment purchased from the USSR was quickly sold to a Swedish company and dismantled for parts.
An even more spectacular contract was signed a year later. Pepsico purchased equipment worth a record $3 billion from the USSR. This included 10 tankers and other vessels. The contract allowed Pepsi to double its production network in the Soviet Union. Additionally, the company could enter the Soviet market with the Pizza Hut chain.
However, Pepsi's long-standing presence in the USSR wasn't enough to win the war against Coca-Cola. After the fall of the empire, the latter drink was finally able to enter the Russian market legally and quickly caught up to its rival.
Twenty-seven years after the collapse of the USSR, Coca-Cola holds nearly 50 percent of the Russian carbonated soft drink market. Pepsico has to settle for 19 percent, although it leads its rival in the juice and bottled water segments.
