One of the most unusual events in the history of Pepsi involved receiving submarines as part of an agreement with the Russian government.
Today, I will cover the exact details of what the terms of the deal were, and why submarines were agreed to be used as one of the forms of payment for the deal.
In 1990 Pepsi announced they signed a deal to double their distribution of Pepsi in Russia.
Instead of paying in Russian Rubles, the Russian government agreed to build submarines that Pepsi would sell.
It was a complex agreement. More details about how it worked are explained below.
Pepsi first began selling Pepsi in Russia in the 1970s, and before signing this deal in 1980, Pepsi had a 10-year deal to sell Pepsi in Russia.
Below, I will cover what Pepsi did with the submarines, the deal’s terms, and what Pepsi did with the subs.
What Did Pepsi Do With the Russian Submarines & Ships?
Some international treaties and laws dictate who can own arms, military forces, and vehicles such as ships and submarines and for what purpose.
Pepsi is not involved in international relations, and as stated in their annual reports are only engaged in manufacturing beverages and snack foods.
So, here is what PepsiCo, Inc. did with the submarines and ships they acquired as part of the 1980 deal with the Soviet Union.
According to the BBC, Pepsi sold the Russian submarines and ships to be broken down into scrap metal.
The agreement between the Soviet Union and Pepsi included 17 submarines, 3 warships, a frigate, a destroyer, and a cruise.
On top of that, PepsiCo acquired Soviet oil tanks – used to transport oil worldwide.
As you may know, the region around Norway has large oil reserves.
Pepsi initially leased them to a Norwegian company and sold them to them later.
What Was Included In the Deal Between Pepsi and Russia?
The official press release about the agreement was made by the then-CEO of PepsiCo, Donald M. Kendall, in 1990 (source: 1990 article published in the Washington Post).
For businesses and brands to operate in a given country, they must register as a business or corporation with the government for tax purposes.
Otherwise, they can face prosecution and pay much more or be banned from business in a given country.
Before Pepsi could do business in Russia, it needed to deal with the Russian government at the time.
Due to PepsiCo’s enormous popularity and size, it made sense for them to make a direct deal with the Russian government.
Due to the large amount of revenue Pepsi could make from having a business agreement to distribute Pepsi in Russia, they were incentivized to negotiate a favorable deal with the Russian government.
The Russian government would also make substantial tax dollars from Pepsi’s sales in Russia.
Therefore, they both came to the table to decide how to structure the deal.
Below is a table that shows the major points of the deal and what both parties agreed to do:
|What Pepsi would do||What the Russian government would do|
|Build 25 new Pepsi bottling plants||Build 10 ships – oil tankers and submarines|
|Invest $1 billion||Grant exclusive rights to Pepsi to sell Russian vodka in America for another 10 years|
|Build 2 new Pizza Hut restaurants in Moscow||Grant Pepsi rights to sell Pepsi in Russia|
Why the Russian government didn’t just pay cash?
Russia is a huge country with a tumultuous political history, which made the country and economy unstable.
Before 1990 Russia was called the USSR and comprised 14 republics (source).
The foreign currency exchange systems that are in place today essentially became far better and are more sophisticated with the widespread adoption of the internet, which occurred 5 to 10 years after the deal was made.
International trade and international markets involve a range of different players and are a little bit complex.
So, here’s a video that shows how the current currency exchange markets work:
So, due to the large sums of money involved in the deal, it was not the best for both parties to own so much of each other’s currency.
For example, it was not feasible for Pepsi to hold billions of dollars of the Russian ruble.
Or for the Russian government to hold billions of US dollars (USD).
The main reason is that spending it all would be difficult because it’s such a large sum of money.
Also, the Russian ruble wasn’t considered a stable currency internationally due to the country’s political instability.
And therefore, there would be some difficulty in spending the Russian rubles to pay for things.
How much in sales Pepsi made in Russia before signing the deal?
Pepsi began selling its soft drinks in Russia in the 1970s.
According to the Washington Post, Pepsi was projected to serve double the number of sodas after the deal was signed.
Either at restaurants or in bottles and cans.
The year before the deal, Pepsi sold 1 billion sodas in Russia.
Therefore, they were projected to sell 2 billion sodas.
The population of Russia is roughly 140 million people.
This means it was projected there would be 0.02 Pepsi’s sold per person per day in Russia.
Which is very conservative and achievable.
According to PepsiCo’s annual reports, the current sales of Pepsi beverages in Russia were roughly US$1.4 billion in 2021.
Since each Pepsi costs a few dollars means that from when the deal was signed in 1980 until today, the sales of Pepsi in Russia have grown 3 times.
The figures used to arrive at this number are that:
- PepsiCo’s total annual revenue was $80 billion in 2021
- 45% of PepsiCo’s annual revenue came from beverage sales
PepsiCo did not state precisely how many sales of Pepsi were made in Russia in 2021. Only 23% of their total beverage sales were made in:
- United Kingdom
- South Africa
Doing some rough math, the total beverage sales Pepsi made in 2021 in Russia is $1.4 billion.
Some people online have stated that at one point in time, Pepsi had one of the 6th largest navies in the world.
However, the fleets of submarines and ships Pepsi owned were never manned with military personnel.
Therefore, it’s not true that Pepsi had a navy or a large navy.
Does Pepsi Own Nuclear Submarines?
PepsiCo, Inc. used to own some submarines and warships as part of business deals with Russia.
But, here is if Pepsi owns any nuclear submarines, regular submarines, or ships.
Pepsi no longer owns nuclear submarines.
Pepsi acquired some submarines as part of a business agreement with the Russian government in 1980 which involved doubling the production of Pepsi sodas in Russia.
Pepsi later sold them and since has not created a similar deal.
Pepsi’s intention to acquire submarines as part of the deal was to sell them and lease them.
However, PepsiCo, Inc has never had its own military personnel.
Does Pepsi Support the Military?
In the past, PepsiCo, Inc. and the Coca-Cola Company have had products consumed by the US military. There is a range of services that the military needs to function.
But, below is whether PepsiCo, Inc. supports the military in any way.
Pepsi does not support the military directly.
According to their annual reports, PepsiCo, Inc. is not involved in the military in any country.
However, they support various charitable organizations that help people and regions affected by war.
Currently, PepsiCo, Inc only manufactures beverages and snack foods.
And do not create military equipment or provide funding to military forces in the USA or internationally.
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