In 1989, Pepsi traded a supply of their carbonated beverage with the Soviet Union in return for 17 submarines and 3 ships.

It briefly meant that Pepsi had the sixth-largest navy in the world.

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American National Exhibition

The story begins at the American National Exhibition in Moscow, which was a cultural and technological showcase organized by the United States in 1959. It aimed to display American achievements and promote cultural exchanges between the United States and the Soviet Union.

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The exhibition also showcased American cars, fashion, art, and consumer products to offer Soviet citizens a glimpse into American life and culture. The American National Exhibition aimed to present a positive image of the United States and its economic prosperity, contrasting with the Soviet Union’s communist system.

One of the notable exhibits at the American National Exhibition was the model American kitchen, which was set up to demonstrate the modern conveniences and lifestyle associated with American households. This kitchen, equipped with the latest appliances and gadgets, became the backdrop for the famous ‘Kitchen Debate’ between U.S. Vice President Richard Nixon and Soviet Premier Nikita Khrushchev.

Nikita Krushchev and Richard Nixon preparing to enter the ‘Kitchen Debate’.

Also at the exhibition was Pepsi’s executive and future CEO, Don Kendall, who realised how big of an oppurtunity this could be.

The night before the opening, Kendall said in a conversation with Richard Nixon ”I’ve gotta get a Pepsi in Krushchev’s hand, or I’m in trouble”.

When Krushchev arrived at the Pepsi booth the next day, Kendall asked him to compare two cups of Pepsi, claiming one was made in New York, and the other was made in Moscow. Krushchev obviously claimed the Pepsi made in Moscow tasted far better, it is reported that he then proceeded to down seven cups of the beverage.

Pepsi For Vodka

It then took more than a decade before Kendall could secure a deal with the Soviets to trade Pepsi in their nation. In 1972, the drink began to be exported to the Soviet Union, who agreed to lock Coca-Cola out of any future deals. There was one issue with the deal though as the company could not accept the ruble – the currency in the Soviet Union.

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Instead, the company would take payment in Stolichnaya Vodka that they could then sell in the United States. The deal first seemed to be great, Americans loved the vodka, and by the late 1980s, a billion servings of Pepsi were being consumed a year in the Soviet Union.

A Soviet Papa Class submarine. An example of the newer kit the Soviet Union was releasing at the time.

The deal would take a turn after the United States implemented a boycott of Soviet products, including vodka, in response to the Soviet Union’s invasion of Afghanistan. As a result, Russian vodka faced restrictions and a decline in demand in the US market. Recognizing the challenges of obtaining payment in the form of cash, Pepsi sought an alternative arrangement to fulfill its financial needs.

The Pepsi Navy

In 1989, Pepsi and the Soviet Union entered into a remarkable agreement. As part of the deal, Pepsi acted as the intermediary for the sale of 17 decommissioned submarines and three warships, including a frigate, a cruiser, and a destroyer, which were subsequently sold for scrap. Additionally, Pepsi purchased new oil tankers from the Soviet Union, some of which were leased or sold in collaboration with a Norwegian company.

In return for facilitating these transactions, Pepsi was granted the opportunity to significantly expand its presence in the Soviet Union by establishing more than double the number of Pepsi plants.

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The deal ignited a joke that Pepsi was taking the cola war they have with Coca-Cola to the high seas!

In a conversation with Brent Scowcroft (President George H.W. Bush’s national security adviser), Kendall joked that “We’re disarming the Soviet Union faster than you are”.

Ultimately, the Soviet Union collapsed in 1991 resulting in the disintegration of the strong partnership that Don Kendall had diligently cultivated over the years. With the Soviet Union’s downfall, Coca-Cola swiftly seized the opportunity and inundated the market with its product, overpowering Pepsi in sales within the region.