The Cola Wars: Pepsi’s Vodka Fueled Navy
If you’re like me, the more you study history, the more you laugh at it. There are some beautiful, heroic, tragic, and inspiring stories to be found in a history book. They are also often quite silly. Our story for today is a combination of those things and features Nixon, the Soviet Navy, and possibly your favorite carbonated beverage.
The American National Exhibition was held in Moscow in 1959. Featured companies included IBM, Disney, and Pepsi, among others. If you know anything about this Exhibition, it might be the “kitchen debate” between then Vice President Richard Nixon and Soviet First Secretary, Nikita Khrushchev. There is a photo of the exchange showing the two debating the merits of Capitalism vs. Communism.
There is another photo that was taken shortly after that heated exchange that started one of the more bizarre stories of the late 20th century. In the photo, Khrushchev is cooling off with a cup of Pepsi.
That moment was a carefully orchestrated plan between Nixon, and his friend Donald Kendall, (a Pepsi marketing executive) to help Pepsi break into the Soviet market. It had to be done stealthily as Kendall had been told not to involve Pepsi in international affairs.
The photo was a bit of a scandal as the Soviet leader was enjoying a Western product. Slowly, the Soviet Union warmed up to Pepsi, importing what they could, until 1972. At that point, Nixon was President, Kendell was Pepsi C.E.O, and they wanted to open bottling plants in the Soviet Union.
The problem was that the Ruble, the Soviet currency, was worthless outside of Soviet controlled lands. So instead of money, the Pepsi plants were paid for with gratuitous amounts of vodka. The Soviets had plenty of it and you can always find a use for vodka.
Personally, Pepsi and vodka doesn’t sound too appealing. I’m more of a Coke guy. And swap the vodka for bourbon. And while you’re at it, hold the Coke.
Those bottling plants, masterminded by Nixon and paid for in vodka, allowed Pepsi to keep Coke products out of one of the largest markets in the world. That’s why in the late ‘80s, when it came time to renew the contract, PepsiCo wanted to extend some of their other properties into the country. It wasn’t enough for the Soviets to drink Pepsi, they had to eat at Pizza Hut too.
The expanded contract was valued at $3 billion, the Ruble was still only valuable in the Soviet Union, and vodka wasn’t going to cut it this time.
The Soviets ended up paying the bill in scrap metal. What does $3 billion dollars in metal look like? A navy.
In exchange for their presence in the country, PepsiCo had acquired 17 submarines, a cruiser, a frigate, and a destroyer. For a short time in 1989, PepsiCo had by some metrics, the 6th most powerful navy in the world. The Cola Wars could’ve been fought at sea. Imagine if Nixon had been friendly with Disney instead of Pepsi.
What is the point of all this?
1.) I hope you enjoyed the story as much as I did.
2.) History, the history of politics, the history of business and politics, is wild. Keep in mind, this was in the middle of the Cold War. The Soviets were the enemy. But if a dollar could be made, that dollar would be made, no matter where the vodka came from.
A businessman’s priority will always be business. A politician’s priority should be the body politic. When those get conflated, you end up with a militarized soft drink company.
