Ever heard about the time “Pepsi had the sixth largest navy in the world”?
Perhaps one of your boys told you about it. Maybe they read about it on Reddit. If you believed them and googled it, you’d find plenty of stories like Business Insider’s “How Pepsi Briefly Became the 6th Largest Military in the World,” or Atlas Obscura’s “When the Soviet Union Paid Pepsi in Warships,” or the Daily Kos’ “When Pepsi Had a Navy.”
“With its faltering economy, the USSR did not have many consumer products that it could successfully sell to the West,” the Daily Kos explained in its story. “But one thing it did have, thanks to its bloated Cold War military budget, was a lot of surplus equipment for its armed forces. And so, in what must be one of the oddest commercial agreements ever signed, Gorbachev agreed to turn over to Pepsi a fleet of 17 obsolete Soviet Navy diesel attack submarines along with a decommissioned cruiser, destroyer and frigate, as well as a number of new civilian oil tankers. At a stroke, PepsiCo had become the sixth most powerful navy in the world. The oil tankers would in turn be sold to Norway, and the decommissioned military ships and submarines would be sold for scrap to a shipyard in Sweden.”
While this story almost always goes low-key viral, there’s one pretty significant problem: It’s totally wrong!
First of all, 17 attack submarines, one cruiser, one destroyer and one frigate wouldn’t have possibly qualified as the “sixth largest navy in the world” in 1991, the year this allegedly all took place. In fact, it wouldn’t have even placed Pepsi in the Top 25 navies in the world. Not by a long shot.
But what about the rest of the story? Is any of it true?
Yes, and it’s much, much wilder.
Let’s start at the beginning: On October 4, 1957, after launching the satellite Sputnik 1, the Soviet Union was momentarily the most advanced nation in the world. Because the good ol’ U.S. of A. was now feeling a little unsure of itself, two years later, Vice President Richard Nixon made an unprecedented trip to the Soviet Union for an American exhibition in Moscow, which was intended to show the communists how well Americans were living, too.
Along the way, Nixon offered Nikita Khrushchev and his Soviet delegation a refreshing cup of Pepsi, which had been made and bottled in Moscow. Khrushchev delighted at the sugary, fizzy drink. Nixon then offered the Soviet leader a second sample that had been bottled in the U.S. The idea was to show that Soviet-made Pepsi could be just as good as the America-made soda. It was a capitalist’s trick to get the communists to open up their markets. And just like that, the Russian love affair with Pepsi was underway.
Some 12 years later, Vice President Nixon had become President Nixon, and as the leader of the free world, he sent a Department of Commerce commission to the Soviet Union to stoke trade between the two Cold War rivals. On the trip was Pepsi CEO Donald Kendall, who was the one who had arranged for his good friend Nixon to give Khrushchev the Pepsi taste-test back in 1959. This time Kendall nailed down what would become a hugely lucrative deal for Pepsi.
Essentially, the Soviets paid for their Pepsi with vodka. Or more specifically, the sodamaker was given exclusive rights to distribute Stolichnaya in the U.S. Starting in the 1970s, and powered by Pepsi’s advertising and marketing cunning, the distribution deal led to a swift rise in the vodka’s popularity in America. In 1973, Stoli was selling 30,000 cases a year in the U.S. By 1978, the vodka brand was pushing 200,000 cases annually. And by 1980, that number had climbed to 1 million, making it the second most popular vodka in America.
This, however, came to a screeching halt in 1979, when the Soviet Union invaded Afghanistan, leading American consumers to boycott Stoli and allowing Swedish-made Absolut to claim the lion share of the American vodka market.
Pepsi, though, wasn’t about to abandon its foothold within the Soviet Union. If anything, it pushed with the full force of capitalism to keep growing its business there. And so — along with a little help from Michael Jackson, whose Russian language ads aired throughout the Soviet market — Soviet demand for Pepsi climbed to a fever pitch throughout the 1980s. It was so great that no vodka deal could ever pay back the amount of Pepsi that the Soviet people were consuming.
Thus, in May 1989, the New York Times reported, “PepsiCo recently bought from the Soviets 17 submarines (for a measly $150,000 each), a cruiser, a frigate and a destroyer. They are being resold for scrap. It has also bought new Soviet tankers (to carry oil, not beverages) in a joint venture with the Soviets and a Norwegian company that will lease them out or sell them.” (“We’re disarming the Soviet Union faster than you are,” Kendall joked with George H.W. Bush’s National Security Advisor.)
It seems this is the origin of all the “Pepsi has the sixth largest navy in the world” breathlessness. The thing is, the proposed deal for the Soviet flotilla never actually went through. Instead, a $3 billion agreement was reached that would’ve seen Soviet shipyards “build at least 10 commercial vessels for Pepsi that will then be sold or leased in the international markets. A spokesman for the Purchase, N.Y., soft drink maker and fast-food marketer said the ships will range in size from 28,600 to 65,000 tons.”
However, this deal also fell through. As Pepsi’s 1994 annual report to the SEC shows, there were no reported profits from any assets or leases from the corporation’s shipping concern or reported profits from the sales of ships. The reason is, on December 25, 1991, the Soviet Union broke apart. And Pepsi quickly discovered that “the shipyard that was building the double-hulled tankers that PepsiCo was selling to finance its Pizza Huts and new bottling plants in Russia was now in a different country, Ukraine, and the new Ukrainian government wanted the revenues from the ship sales.”
“We had to restructure all the elements of the 1990 contract so that we had the appropriate deal in each [Soviet] republic,” Richard M. Norton, a vice president of PepsiCo, recounted at the time. “That has meant, for example, expanding our business much faster in Ukraine — we are bringing in prefabricated Pizza Huts there — in order to use the revenues from the ship construction. But we are really going to have to work to expand our vodka sales in the United States and to buy more apple juice and other products in order (to generate enough cash) to meet the demand for Pizza Huts in Moscow and St. Petersburg.”
Notably, the rollout for the fast-food chains that Pepsi pushed was rushed and didn’t go as smoothly as it would’ve hoped. For instance, the pizza chain had a little problem with STDs: “Pizza Hut’s first major stumbling block resulted from failing to screen all employees for venereal disease, and had to be temporarily shut down.”
Eventually, though, the sugary, fizzy, red-white-and-blue symbol of American capitalism figured out the new Russian market and retained its profitable love affair with the Russian people. So much so that, in 2004, Vladimir Putin awarded the man who started it all, Donald Kendall, with the Order of Friendship.
There were just no submarines or warships included.
Zaron Burnett III
Zaron Burnett is an investigative journalist and longform features writer based in Los Angeles. He covers culture, politics, race, and other perplexing mysteries for MEL.
