It goes without saying that all the big things start small. The multi-billion-dollar deal that Pepsi Company had with the Soviet government (featuring Pepsi, vodka, and submarines), also started from that small sip of Pepsi that is captured here in this photo.
The American National Exhibition
In the midst of the Cold War, when the Soviet Premier Nikita Khrushchev had not yet visited the United States and Richard Nixon was only a Vice-President, there was an event called the American National Exhibition in Moscow. The American Government had organized this large-scale exhibition in Moscow Sokolniki Park to showcase the latest consumer products and capitalist achievements to the Soviet public. It was July the 24th, 1959.
First Skeptical Sip of Pepsi
The exhibition is primarily famous for the Kitchen Debate. But it also provided other historical moments of almost equal importance. One of them took place just moments before Khrushchev and Nixon entered the famous kitchen. Nixon steered the Soviet Premier, who was visibly hot and sweating, to the nearby Pepsi stand.
The booth was run by Donald M. Kendall, the head of Pepsi’s overseas operations and also a good friend of Richard Nixon. Kendall then served the Soviet leader Pepsi asking, whether he preferred a bottle of the drink as produced in New York or one made using local Moscow water.
Khrushchev, predictably, chose the local one and thereafter took his first skeptical sip of Pepsi from the cup that Kendall offered. He then tried the foreign one and immediately urged everyone to “Drink the Pepsi-Cola made in Moscow. It is much better than the Pepsi made in the U.S.”
It was, of course, a perfect marketing opportunity for the company. “I had to get a Pepsi in Khrushchev’s hands, or I’m in the doghouse back home,” Kendall remembered. “I had to get a picture.” The photo that was quickly taken was later made a central piece at the marketing campaign, that used the slogan “The Sociables prefer Pepsi” at that time.
Official Soda of the Cold War
It took Kendall another thirteen years, and state-level help from President Nixon, to see the Khrushchev moment finally pay off. On November the 16th 1972, under Kendall, who was now a chief executive, Pepsi finally stroke a barter deal with the Soviet government, that was a dream come true for the company. The PepsiCo was to trade its cola syrup for Stolichnaya vodka. By that, Pepsi became the first capitalist consumer product to be entirely produced, marketed and sold in the Soviet Union.
In 1974, the first Pepsi plant was opened in Novorossiysk and the mass distribution was ready to start in 1979. It was a massive deal and it gave Pepsi an important advantage over Coca-Cola in the global Cola Wars.
Pepsi Cans for Military Submarines
In 1989, the initial deal between the government of the Soviet Union and PepsiCo was about to expire and a new three-billion-dollar deal was made.
This time the vodka bottles were not enough to pay for the soda and Russia used what it had plenty of at that time – military equipment.
Altogether 17 submarines, a cruiser, a frigate and a destroyer were given to the Pepsi Company in return for the constant flow of sugary drink that the Soviet people had learned to love so much.
The acquisition of those submarines made PepsiCo – at least for a few days – the 6th largest military power in the world by the number of its diesel submarines. These vessels were then quickly sold to a Swedish company for recycling.
The Cola Wars
Nevertheless, all this was not enough to beat Coca-Cola in the Cola Wars. The huge advantage in the Soviet Union turned into a disadvantage in only a few years as the Soviet system collapsed in Eastern Europe. People now welcomed genuinely western brands that had no connection with the Soviet past.
This, combined with many other flops, gave the Coca-Cola Company an advantage and PepsiCo, despite having invested over 19 billion dollars in Russia, is made to retreat on all fronts.