When Pepsi Briefly Owned Soviet Submarines
In 1959, a desperate Pepsi exec named Donald Kendall made a wild bet in Moscow. He had to get Soviet leader Khrushchev to drink Pepsi on camera during the Kitchen Debate with Nixon.
That one sip launched the strangest business deal in Cold War history. Thirty years later, the cash-broke Soviets paid Pepsi with warships instead of rubles, making the soda company briefly own more submarines than most countries.
Here’s the full story, and you can visit where it all started at the Pepsi birthplace museum in New Bern.
Nixon Helped Pepsi Win the Cold War Publicity Battle
Donald Kendall took a huge risk at the American embassy in Moscow.
The night before the Kitchen Debate, Pepsi’s international boss begged Vice President Nixon to “get a Pepsi in Khrushchev’s hand” to justify his trip expenses.
Pepsi bosses thought sponsoring the American National Exhibition booth was a waste of money. Kendall ignored their orders and bet everything on this publicity move.
Nixon agreed to help set up the photo during Khrushchev’s tour. The Pepsi booth offered drinks made with both American and Russian water.
Cold War Tensions Boiled Over in a Model Kitchen
On July 24, 1959, Nixon led Premier Khrushchev through the American National Exhibition at Sokolniki Park. Three million Soviets came to see products from 450 American companies.
The two leaders found themselves in a model American house cut in half for viewing. Their famous “Kitchen Debate” started as they argued about capitalism versus communism.
Reporters crowded around while the heated talk moved from a TV studio to the kitchen display. Tensions grew as they stood among American appliances, each defending their country’s way of life.
Khrushchev Asked for a Second Cup of Capitalism
After the kitchen showdown, Nixon took Khrushchev to the Pepsi booth where Kendall waited with cold samples. Photographers took pictures as the Soviet leader sipped from a paper cup.
Khrushchev surprised everyone by asking for seconds, telling his friends the drink was “very refreshing. ” Kendall poured more samples while standing next to the two leaders.
The moment made front-page news in The New York Times the next day, giving Pepsi amazing publicity behind the Iron Curtain.
A Career-Making Photo Propelled Kendall to CEO
The publicity win with Khrushchev pushed Kendall from international division head to Pepsi CEO by 1963. That single photograph became the company’s best marketing tool.
Pepsi joined with Frito-Lay in 1965 to form PepsiCo with Kendall in charge. The doubters who fought the Moscow trip now praised his vision.
Kendall focused on getting into the Soviet Union, spending years building relationships with Soviet officials and planning for a business deal.
Pepsi Beat Coca-Cola Behind the Iron Curtain
Kendall’s hard work paid off in 1972 when he got an exclusive 15-year monopoly deal with the Soviet Union. Pepsi became the first American consumer product made and sold in Soviet territory.
The agreement kept Coca-Cola out of the Soviet market until 1985.
One problem remained: Soviet rubles had no international value and couldn’t leave the country under Soviet law.
PepsiCo fixed this by creating a trade system, swapping cola syrup for Stolichnaya vodka they could sell in Western markets.
Russians Drank Pepsi While Americans Sipped Stolichnaya
The trade deal worked well for years. Pepsi shipped concentrate to Soviet bottling plants where workers mixed and sold it locally.
In return, the USSR gave equal amounts of Stolichnaya vodka for American sales. Monsieur Henri Wines Ltd.
handled vodka imports since PepsiCo couldn’t legally import alcohol. By the late 1980s, Russians drank about one billion Pepsi servings yearly.
The partnership grew when Michael Jackson became the first Western pop star to appear in Soviet TV ads in 1988.
The Afghanistan War Created a Vodka Problem
Americans boycotted Soviet products after the USSR invaded Afghanistan. This left Pepsi with extra vodka they couldn’t sell. U.S. sanctions on Soviet goods made it harder to sell Stolichnaya in American markets.
Pepsi needed new payment methods as the vodka trade became unprofitable. The Soviet economy needed hard currency as the Cold War continued. Mikhail Gorbachev’s reforms welcomed Western investment but offered few consumer goods in return.
Soviet Submarines Became an Unusual Form of Payment
The broke Soviets came up with a strange solution in spring 1989. They offered Pepsi 17 submarines, a cruiser, a frigate, and a destroyer worth $3 billion.
The old vessels were rusting in port and too costly for the USSR to keep. Pepsi agreed to act as middleman, quickly selling the fleet for scrap to Norwegian companies.
The deal included new Soviet oil tankers that Pepsi leased through joint ventures. This plan would double Pepsi’s bottling plants in the Soviet Union.
A Soda Company Briefly Owned a Military Fleet
For a short time, Pepsi owned what would have been the world’s seventh-largest submarine fleet.
Kendall joked to President Bush’s security advisor Brent Scowcroft: “We’re disarming the Soviet Union faster than you are. ” The company had no intention of operating warships and sold them immediately as scrap metal.
American newspapers ran bizarre headlines about a soda company owning military vessels. Pepsi used profits from the scrapped ships to expand Pizza Hut restaurants into the Soviet market.
Kendall Negotiated the “Deal of the Century”
Building on the naval deal, Kendall negotiated a $3 billion agreement in 1990 calling for the USSR to build 10 new oil tankers for Pepsi.
This became the largest deal ever between an American company and the Soviet Union. The agreement promised to expand Pepsi operations dramatically across Soviet territories.
Media called it the “deal of the century” with projections spanning the entire 1990s decade. Pepsi executives bet everything on the Soviet Union’s long-term economic stability.
The Soviet Collapse Left Pepsi Scrambling
The Soviet Union fell apart in December 1991, shattering Pepsi’s multibillion-dollar contracts overnight. Kendall complained: “One of our biggest partners had just gone out of business.”
Assets scattered across 15 new nations: tankers in Ukraine, bottling plants in Belarus, mozzarella cheese factories in Lithuania.
Coca-Cola aggressively entered former Soviet territories while Pepsi scrambled to salvage operations.
Russia remained Pepsi’s second-largest market, but their pioneering advantage vanished forever as they now had to negotiate with multiple governments instead of one central authority.
Visiting The Birthplace of Pepsi-Cola in New Bern, NC
You can visit the birthplace of Pepsi-Cola at 256 Middle Street in New Bern, right at the corner of Middle and Pollock Streets.
Browse the free gift shop and historical displays Monday through Saturday 10am to 6pm, Sunday 12pm to 4pm. Try fresh Pepsi fountain drinks and ice cream at their working soda fountain.
Check out vintage advertising and bottles in their memorabilia collection. There’s also a separate Pepsi Family Center exhibit at the nearby North Carolina History Center.
This article was created with AI assistance and human editing.
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