Two bottles—one dark, carbonated, with a red-white-and-blue label; the other clear, strong, with a Cyrillic inscription—did what diplomats had failed to do over twenty years of negotiations. They passed through a wall that could not be seen from the air, but was stronger than concrete: the nonconvertible Soviet ruble.
It all began with a plastic cup. In 1959, the American National Exhibition opened in Moscow’s Sokolniki Park—one of those rare shop windows through which two worlds could look each other in the eye. The exhibits included kitchen appliances, cars, a model home, and a Pepsi-Cola stand. Donald Kendall, then head of PepsiCo’s international division, understood: if Khrushchev walked past the stand, the whole exhibition venture would be a waste of money for the company. If he stopped—a photograph would circle the globe.
Khrushchev stopped. Kendall handed him a cup. The General Secretary tasted the drink, and the cameras clicked. The image of the leader of the communist world drinking a symbol of American capitalism became one of the most widely reproduced pictures of the Cold War. But Kendall was not thinking about the photograph—he was thinking about a market of 250 million people, closed to Western goods. Thirteen years would pass between that cup in Sokolniki and an actual contract, and those thirteen years are a story of patience rarely associated with carbonated drinks.
What wins me over in this episode is its theatrical simplicity. No secret channels, no encrypted telegrams—just a cup handed to the right person at the right moment. Kendall later rose to become chairman of PepsiCo’s board and used every thread of his connections to turn the idea into a contract. His closeness to Richard Nixon, who in 1959, as vice president, had accompanied Khrushchev through the exhibition, proved no less valuable than the drink’s recipe itself.
To understand the 1972 deal, you first have to understand why it required such ingenuity in the first place. The Soviet ruble was a currency of a closed system. Its exchange rate was set by decree; it was not traded on exchanges; it could not be freely taken abroad and exchanged for dollars, marks, or pounds. For a foreign company, this meant a trap: you could sell your product in the USSR and receive rubles, but those rubles were worthless slips of paper beyond the Soviet border. You could not take your profits out. There was nowhere to reinvest them domestically, because private ownership of the means of production did not exist.
This problem was not PepsiCo’s alone. Any Western company hoping to work with the USSR ran into the same dead end. The usual route was countertrade: the Soviet Union paid in raw materials, energy resources, timber. But Kendall found something more elegant. Instead of oil or lumber, he proposed a product that already had demand on the American market and could generate dollar revenue directly in the United States. This product stood on the shelves of Soviet stores at 3 rubles 62 kopecks per half-liter and was called Stolichnaya.
The logic of the barter arrangement was a clockwork mechanism with two springs. The first spring: PepsiCo supplies the Soviet Union with concentrate for producing the drink and bottling equipment. Soviet plants make Pepsi, sell it for rubles, and the rubles remain in the Soviet economy. The second spring: Soviet foreign-trade organizations—and alcohol exports were controlled by state bodies that monopolized foreign trade—ship Stolichnaya vodka to the United States. There, it was distributed by Monsieur Henri Wines, which had obtained exclusive rights. The dollar revenue from vodka sales in America offset PepsiCo’s costs for the concentrate and technology supplied to the USSR. The ruble never crossed the border—and it did not have to.
The deal could not have happened in either 1959 or 1965. It became possible in a specific political climate—during the period of détente, when Nixon and Brezhnev were feeling out ways to lower the temperature of the confrontation. In May 1972, Nixon flew to Moscow—the first visit by a sitting American president to the USSR. Agreements were signed on the limitation of strategic arms (SALT I), the ABM Treaty, and documents on cooperation in space. Against the backdrop of those tectonic shifts, a trade agreement involving soda and vodka looked like a trifle. But it was precisely such “trifles” that created the fabric of everyday interaction, without which high politics would have remained a collection of declarations.
Donald Kendall was not merely a businessman—he was a figure with access to the political circles of both capitals. His friendship with Nixon had begun back in the fifties, and PepsiCo generously supported Republican election campaigns. In Moscow, Kendall built relationships with the Soviet trade bureaucracy—a machine which, for all its lumbering nature, knew how to move fast when the signal came from above. The 1972 agreement was the result of years of negotiations in which commercial logic and political will became so tightly intertwined that separating one from the other is no longer possible.
The Soviet side, too, had reasons that went beyond pure economics. Pepsi on the shelves was a signal to the outside world: we are open, we are capable of cooperation, we are not afraid of Western brands. For the domestic audience, it was a sign that life was improving, that scarcity was retreating by at least one step. Stolichnaya vodka in American bars was an instrument of soft power long before the term entered common use. Soviet alcohol exports brought in the hard currency the country desperately needed to purchase grain, technology, and equipment.
The first Pepsi-Cola plant in the Soviet Union began operating in 1974 in Novorossiysk, a port city on the Black Sea. The choice of location was not accidental: the port handled the logistics of concentrate deliveries, while proximity to the Caucasus resort zones guaranteed demand. The line’s capacity was up to 160,000 bottles per shift—a figure impressive by Soviet standards and modest by American ones. But the plant worked, bottles rolled off the conveyor belt, and Pepsi became the first Western consumer brand manufactured on Soviet territory.
By 1982, the number of plants had grown to eight. Production had spread to Moscow, Kyiv, Leningrad, Tashkent, and other cities. Pepsi was sold in glass bottles of a distinctive shape, and for an entire generation of Soviet people it became one of the few tangible contacts with the Western world. Lines formed for soda at vending machines and kiosks, and the very fact that “real American cola” was being bottled at a Soviet factory by Soviet workers using Soviet water created a bizarre cognitive dissonance that both sides preferred not to discuss.
The barter mechanism kept working all that time like meshing gears. Concentrate went east, vodka west. Monsieur Henri Wines promoted Stolichnaya on the American market with considerable success: by the beginning of the eighties, Stolichnaya had become one of the most recognizable vodka brands in the United States, competing with Smirnoff and Absolut. Every bottle of Stolichnaya sold in New York or Los Angeles paid for several dozen bottles of Pepsi drunk in Tashkent or Leningrad. Currency did not cross the Iron Curtain, but value did.
The story of how Pepsi “acquired” the Soviet military fleet has accumulated so many myths that separating fact from anecdote has become almost impossible. Here is what is known. In 1989, when the Soviet Union was already coming apart at the seams, a separate agreement was concluded—new, and not identical to the 1972 contract. Under the terms of this deal, PepsiCo received Soviet warships: submarines, a cruiser, a destroyer, and several oil tankers. The ships were transferred as payment for Pepsi concentrate.
It sounds as though a corporation from Purchase, New York, had acquired the world’s sixth-largest naval fleet. The internet seized on that phrasing and turned it into one of the most popular “fun facts” about the Cold War. But reality was more prosaic: the ships had been decommissioned, were obsolete vessels, and were meant for one thing only—sale for scrap metal. PepsiCo was not planning to patrol the Atlantic. The company intended to get paid for the steel those ships were made from, and use that money to cover the cost of the syrup it had supplied.
In essence, it was the same barter logic as in 1972, only taken to the grotesque extreme. Vodka was no longer enough to cover the growing volume of Pepsi deliveries, the Soviet economy was in agony, and they turned to what could still be converted into hard currency—the metal of decommissioned ships. I think it is important not to conflate these two agreements: the 1972 deal was a carefully calibrated construction that worked for a decade and a half; the 1989 deal was improvisation amid ruins, a symptom of collapse rather than a model of commercial engineering.
The structure built by Kendall and the Soviet foreign-trade bodies held up longer than détente itself. When, in 1979, Soviet troops entered Afghanistan and relations between the superpowers froze over again, Pepsi plants in the USSR kept operating. When Reagan, in 1983, called the Soviet Union an “evil empire,” the conveyor belt in Novorossiysk was still churning out bottles. Barter proved sturdier than diplomacy: as long as both sides were getting what they wanted—soda and dollars—the mechanism did not need political blessing quarter after quarter.
Coca-Cola entered the Soviet market much later, already during the perestroika years, and struggled to make up for lost time. Pepsi’s advantage, won with a cup in Sokolniki and secured by a barter contract, lasted for almost two decades. After the collapse of the USSR, the situation changed radically: the ruble became convertible, barter lost its meaning, and the market opened to everyone. Coca-Cola invested aggressively in the new Russia and by the mid-nineties had overtaken Pepsi in sales. The irony is that the very instrument that gave PepsiCo access to a closed country—the ruble’s nonconvertibility—vanished together with the country itself.
There is one detail I like in this whole story. When, in June 1987, Reagan delivered his famous line at the Brandenburg Gate, Soviet citizens had already been drinking Pepsi for fifteen years. The wall he called on people to tear down was made of concrete and rebar. The wall PepsiCo went around was made of balance sheets and currency restrictions. The second one was more complicated—and a solution for it was found sooner. It smelled of juniper and wheat, and hissed with carbon dioxide.