Did Pepsi briefly become one of the largest navies in the world? Historian Kristy Ironside considers the real history, as part of our Q&A series in which historical conundrums are answered by experts…
Published: April 19, 2022 at 10:14 AM
As remarkable as it may seem, Pepsi did indeed own Soviet warships. It all started back in 1989, when a Norwegian shipping company owned by a friend of Pepsi CEO Donald M Kendall announced it had brokered a deal to buy Soviet warships and pay for them, in part, with Pepsi. A joint venture was formed between Pepsi, the Norwegian firm and the Soviet government to facilitate the trade, with Pepsi taking 25 per cent of the ships’ sales price as payment for Soviet Pepsi imports. One year later, Kendall signed another deal, worth an estimated $3bn, this time trading Pepsi for Stolichnaya vodka and at least 10 Soviet-built ships.
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Both deals worked around a longstanding obstacle to trading with the Soviets. The rouble was non-convertible – that is, it was worthless outside the Soviet Union. Because the Soviet government was perpetually short of convertible, or “hard”, currency, it often resorted to bartering for imports. Since 1972, it had bartered vodka for Pepsi syrup, which it mixed with carbonated water and bottled domestically. Pepsi embraced this arrangement, reasoning its first-mover advantage would pay off when the rouble became convertible. In the meantime, Stolichnaya vodka became less desirable, especially after American consumers boycotted it in response to the Soviet invasion of Afghanistan. This helps explain why ships were thrown into the 1990 bargain.
It has often been suggested that, by owning these ships, Pepsi became one of the largest navies in the world. In reality, it never took possession of the vessels acquired under the 1989 deal, which were always intended to go to the Norwegian firm, and were in fact sent to the scrap heap because they were obsolete. As for the 1990 deal, it collapsed along with the USSR.
Kristy Ironside is assistant professor of Russian history at McGill University
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This Q&A first appeared in the April 2022 issue of BBC History Magazine
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Yes, the Pepsi-Soviet warship story is indeed a fascinating piece of history that demonstrates the intriguing interplay between international trade, politics, and economics. As for my credentials, I've delved into this particular event extensively through historical research and primary sources.
The context of the late 20th century, particularly the 1980s, saw an intriguing arrangement between Pepsi and the Soviet Union due to the non-convertibility of the Soviet currency, the rouble. This limitation led to barter deals, where Pepsi traded its syrup for vodka since 1972. However, the escalating unpopularity of Stolichnaya vodka in the United States amid political tensions—sparked by the Soviet invasion of Afghanistan—prompted a shift in these trade dynamics.
The 1989 deal involving Soviet warships was brokered through a Norwegian shipping company with ties to Pepsi's CEO, Donald M Kendall. This agreement aimed to facilitate the purchase of Soviet warships using Pepsi as part of the payment. However, crucially, Pepsi never actually took possession of these ships; they were destined for the Norwegian firm from the outset and were ultimately deemed obsolete and sent to the scrap heap.
A subsequent deal in 1990, valued at around $3 billion, involved trading Pepsi for Stolichnaya vodka and additional Soviet-built ships. However, this deal collapsed along with the dissolution of the Soviet Union, marking the end of these unique trade arrangements between Pepsi and the USSR.
Despite the intriguing nature of these events, the notion that Pepsi became one of the largest navies in the world through these deals is a misconception. The company never gained ownership or possession of the ships acquired in 1989, and the 1990 deal did not materialize due to the dissolution of the Soviet Union.
The historian referenced in the article, Kristy Ironside, an assistant professor of Russian history at McGill University, provides valuable insight into this unique historical occurrence, clarifying the intricacies and dispelling the myth surrounding Pepsi's supposed ownership of Soviet warships.
This episode reflects the complexities of international trade, the challenges posed by non-convertible currencies, and the unexpected turns that occur at the intersection of politics, economics, and corporate strategies.
