TRADE: Profiting from Pepskis

“A drink of cold Pepsi-Cola will create a good mood and will refresh you.”

That slogan would not fly on Madison Avenue, but it is proving persuasive enough in Pepsi-Cola’s newest market: the Soviet Union. Since 1974, when cases of Pepsi began rolling out of a new plant in the Black Sea port city of Novorossisk, sales have grown to 50 million bottles in 1976 and may climb another 20% this year. Pepsi’s venture has set a pattern for future deals in the just stirring market for Western consumer goods in Russia.

Pepsi’s Soviet foray began with the 1959 Moscow trade fair, at which then Vice President Richard Nixon had his celebrated “kitchen debate” with Nikita Khrushchev. Donald M. Kendall, then head of Pepsi’s international operations, persuaded Nixon to steer Khrushchev to the Pepsi kiosk, where the Soviet Premier downed eight bottles of Pepsi. When ordinary Russians also showed a thirst for the cola drink,

Kendall decided that there was a Russian Pepski generation just waiting for his company’s product. Twelve years later, after Kendall had become PepsiCo chairman and Nixon had moved into the White House as a détente-minded President, a deal was finally made.

The Russians wanted a straight barter deal. The company agreed to furnish them with the essentials for making Pepsi, including bottling equipment from West Germany, over a five-year period (the Russians make their own bottles and handle all distribution). In return, Pepsi got the rights to sell Russian wine and vodka in the U.S. The arrangement boils down to this: the more Soviet booze Pepsi can market in the U.S., the more Pepsi concentrate (and new equipment) the Soviets get.

Pepsi’s main Russian import is Stolichnaya vodka, distributed by the company’s Monsieur Henri subsidiary. It is aimed at the caviar set, costing $7.99 a fifth—$2 more than U.S.-made Smirnoff, the bestselling brand. A newer import in which Pepsi finds promise is a champagne called Nazdorovya, said to be the product of vineyards planted in 1870 on Czar Alexander II’s estate.

Cola Concentrate. Last year Stolichnaya sales in the U.S. totaled 115,000 cases, 70% of the imported-vodka market but a small share of overall vodka volume. There is room for improvement in Stolichnaya’s sales, but beverage-industry analysts believe Pepsi has a good deal going. The company gets a handsome return on its cola concentrate (Pepsi’s most profitable product); the arrangement has also smoothed Pepsi’s entree into other Eastern bloc markets.

The Novorossisk plant mainly supplies the sunny Black Sea resort area, but other plants are coming in the Crimea, Moscow, Leningrad and Tallinn. Pepsi is promoted as a health-giving tonic—an ideal way, as Novorossisk Plant Manager Andrei Oganov puts it, “to quench the thirst, invigorate the body and raise the tone.” The chief problem the Russians have had with it is a low rate of bottle returns: despite a 120 deposit included in the 540 price, souvenir-minded Russians have been hanging on to two of every five bottles sold.

Another measure of Pepsi’s success is the report circulating in the beverage industry that the company’s archrival, Coca-Cola, has quietly sought—and won—a Russian license to sell Coke at the 1980 Moscow Olympics. Coca-Cola officials refuse to discuss the matter, which they say is “very sensitive.” But it would be odd if the Kremlin were not aware of Coca-Cola Chairman J. Paul Austin’s longtime interest in Russia —and his friendship with Jimmy Carter.

Pepsi’s Russian aficionados are experimenting with new ways to enjoy it —not all of which would fall in the health category. The latest rage—so new that it does not yet have a name—is a fifty-fifty mix of vodka and Pepsi in a tall glass. Hammer and Pepsickle?