How the CEO of Pepsi, by bartering battleships and vodka, negotiated Cold War diplomacy and brought his soda to the Soviet Union

ASSOCIATED PRESSPeople stand outside a Pepsi refreshment stand in Moscow ahead of the 1980 Olympics.
  • In the second half of the 20th century, icy diplomatic relations between the US and the Soviet Union made it nearly impossible for American companies to do business in the USSR.
  • Don Kendall, the CEO of Pepsi at the time, made it his mission to break into the Soviet market. Long before the two countries had a working relationship, Kendall was negotiating with the Kremlin top brass to sell his soft drink.
  • After decades of deal-making, the USSR began producing and selling Pepsi in 1971, a huge win for the company over its chief competitor, Coca Cola.
  • To make the deal work, Kendall accepted payment in the form of vodka and, at one point, the exchange of $US3 billion of battleships.
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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. Like many Americans in the beginning of the 20th century, Kendall came from an agrarian background. He was born in Sequim, Washington, to a family of dairy farmers, and he dropped out of college to fight in World War II. After returning from the war, he took his first job at Pepsi, received six promotions in nine years, and became CEO in 1963.

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. So, over the course of nearly four decades, the “Paul Bunyan of American business” tried to do the unimaginable: bring Pepsi to the Soviet Union.

Have a Pepsi, Mr. Khrushchev

In 1959, Kendall had his first opportunity to charm the Soviets into selling Pepsi. President Eisenhower, in an attempt to warm relations between his country and the USSR, organised the American National Exhibition in Moscow. Then-Vice President Richard Nixon, alongside Soviet First Secretary Nikita Khrushchev, toured a series of exhibition booths, many of which were sponsored by American companies.

The event occurred during the height of the Red Scare, so many US businesses, including Coca Cola, were wary of associating their products with the Soviet Union. This presented a prime opportunity for Kendall and Pepsi, the CEO recalled years later.

“The night before the opening, I told Nixon, ‘I’ve gotta get a Pepsi in Khrushchev’s hands or I’m in trouble,'” Kendall said in a speech to the Foreign Policy Association.

Throughout the event, Khrushchev and Nixon had been verbally sparring, debating the various merits and demerits of capitalism versus communism, a series of exchanges later dubbed “the kitchen debates.” Kendall, a shrewd businessman, took advantage of the rivalry. When Khrushchev arrived at the Pepsi booth, Kendall used the first secretary’s nativism to his advantage.

“I have two Pepsis here,” said Kendall. “This one’s made in New York, and this one’s made in Moscow. I’d like you to try them both, Premier Khrushchev, and tell me which one tastes better.”

Naturally, Khrushchev proclaimed the Soviet-made Pepsi the superior product, and the politician reportedly downed seven cups of the soda on sight.

A fleet of warships for a can of pop

Unfortunately, despite the positive press Kendall’s PR stunt generated, diplomatic relations between the two countries cooled rapidly in 1960, leaving American companies once again cut off from doing business with the Soviet Union.

It took more than a decade for Kendall to get another chance to sell Soviet executives on his product, but in 1971 he had a second opportunity.

A lot had changed in the years since — the Cuban Missile Crisis, the Berlin Wall, the Vietnam War — but Kendall still had the same dream. Nixon, now president, had initiated peace talks with the Soviets’ new chief executive, Alexei Kosygin, which led to an international business conference.

Kendall managed to sneak a transistor radio shaped like a Pepsi can through security, and he presented the gift to Kosygin, who thought it was hilarious. The ice-breaker proved to be the talking point Kendall needed: The next day, Kosygin gave him the greenlight to start negotiations to bring Pepsi into the country.

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 realised 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 $US3 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.

Then, in the early ’90s, the Soviet Union collapsed on itself, and the years of relationship-building that Kendall had invested in the two parties’ partnership crumbled along with it. Coca Cola moved in and began flooding the market with its product, and the rival soda-maker now outsells Pepsi in the region.

But even though Pepsi ultimately lost out in the USSR, Kendall’s efforts in opening up the country to American commerce still remain the stuff of legend. In 2004, Kendall received the Russian Order of Friendship medal from Vladamir Putin, cementing his status as one of the most influential business figures in Soviet-American relations.

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