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EAST-WEST TRADE: The Pepski Generation

3 minute read

Amid all the grain deals, gas deals and technology sales shaping up between the U.S. and the Soviet Union, two gaps have existed in trade relations: the Soviets have not bought any widely distributed U.S. consumer goods, nor has any American product been manufactured in Russia. Last week both gaps were filled—and of all the products the Soviets could have chosen, they decided to ask for “Pepsi, please.” Soyuzplodoimport, a Soviet foreign trade corporation, and PepsiCo Chairman Donald M. Kendall reached an agreement giving Pepsi exclusive rights to market cola beverages to be bottled in Russia. The No. 2 U.S. soft drink will thus become the first bit of everyday Americana available to consumers in the Soviet Union.

The PepsiCo deal involves hard as well as soft drinks. The company will import a whole bar shelf of Soviet liquors, including vodka, brandy, cordials and wine, which will be marketed by Monsieur Henri Wines Ltd., a PepsiCo division. Under an ingenious sales-incentive plan, the quantity of Pepsi allowed in Russia will be tied directly to the sale of Soviet potables to Americans. In effect, sharp Soviet traders found a way to get an aggressive American firm to push their liquor hard. PepsiCo officials are also pleased, since U.S. products have high prestige in Russia and sell almost instantly.

Kendall got the idea of expanding to Russia from the late Llewellyn Thompson Jr., longtime (1957-62, 1967-69) U.S. Ambassador to Moscow. After making preliminary inquiries at the Soviet embassy in Washington, he put the question directly to Premier Aleksei Kosygin during a high-level trade meeting in Moscow last December. In the middle of their conversation, then-Commerce Secretary Maurice Stans strode up and cracked to Kosygin: “What’s Kendall trying to do, sell you a Pepsi?” That was precisely what Kendall was doing, and with swift success: that very evening Kosygin approved the outlines of last week’s deal. It was not the first time that Kendall had scored by going to the top of the Soviet hierarchy. In 1959, Kendall set his corporate star rising by persuading Nikita Khrushchev to down a Pepsi to slake the thirst he had worked up during a “kitchen debate” with Richard Nixon at a U.S. exposition in Moscow.

PepsiCo technicians will oversee the remodeling of a Soviet bottling plant capable of turning out some 3,000,000 cases of the beverage annually. As with Pepsi’s bottling affiliates throughout the world, including several in Eastern Europe, the Soviet plant will use concentrate produced in the U.S. but will be owned locally. Kendall claims that the Soviets will allow some advertising—a form of expression almost never used in Russia for competitive advantage.

Kendall should have no trouble developing a Pepski generation in the Soviet Union. Russians already are copious gulpers of sweetened, carbonated fruit waters (common flavors: apple and cherry). In addition, they like a thirst quencher called kvass, which is made from dark bread and has about the same color as Pepsi—but tastes nothing like it at all. Aside from whatever profits PepsiCo makes on the deal, it may carry one other happy benefit. The droves of U.S. businessmen going to Moscow may be able to sip something during their negotiations other than the ever-present mineral water.

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