Pepsi: The 6th largest Navy in the world

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Miscellanous / Thursday

As a reminder, Thursdays are days when I get to geek out and use this blog as a platform to talk about something I’ve come across randomly or something I’ve been thinking about for some time. This week’s post is the former.

Today, we take economic transactions for granted. You swipe, you tap, you hold your finger on a circle of glass. God forbid, sometimes you need to use cash. But what if the currency you had had no value? Or you had no currency to exchange for goods? What would you resort to?

In 1989, the Soviet Union had a similar problem. It had reached the end of its multi-decade long deal with PespiCo. But its citizens still wanted the product. The rouble was worth nothing in international markets. Till 1989, the Soviet Union had resorted to barter in somewhat equal domains – they would give Pepsi Stolichnaya (Russian Vodka) in exchange for Pepsi cans. This had worked out well – there was a lot of demand in America for Russian Vodka. But in 1989, demand for Vodka gone down and PepsiCo wanted something most tangible.

Something tangible they did get. Warships, submarines, oil tankers. For a few days when Pepsi had these items on their balance sheet, they had the 6th largest navy in the world! These were quickly sold off for scrap to various companies around the world.

So why take on this unnecessary risk? Sure, navy ships can be seen as just another mode of payment, but they are far more volatile and these exchanges were naturally more difficult to negotiate, process and approve. An American company was buying enemy ships. The US Government surely had a thing or two to say about that.

In fact, this deal was encouraged from the inside. The reasoning went that this carbonated sugar water would allow the common Russian to get a glimpse of capitalistic societies. This makes sense. You get a sugar high from drinking a can of soda. It feels good. Maybe some of these positive emotions would rub onto the US through association. For Pepsi, it was an international market where they would get ahead of Coca-Cola (the deal throughout the 70s and 80s banned any other company to sell similar products).

I am a strong believer in the power of symbolism. But it’s unclear how drinking Pepsi cans helped create goodwill towards the US. We do know that Pepsi’s goals were unsuccessful. Post the fall, each newly formed country in the Soviet Bloc wanted to renegotiate the contract. But this would lead to a lot of administrative costs, in addition to the sunk costs they had already put into the Russian endeavor. Because of this – and probably a combination of other reasons – Coca Cola ended up being the preferred beverage of the Soviet Bloc.

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