59. The Pepski Generation
In 1990, PepsiCo made a deal with the Soviet Union for submarines, a cruiser, a frigate, and a destroyer. It was the largest agreement ever made between an American company and the USSR. But it wasn't Pepsi's first deal with the Soviets. For decades, one executive had been flying to the Soviet Union to meet foreign trade ministers, politicians, and regular Russians. At the height of the Cold War, he was determined to make a deal and bring two countries locked in a bitter conflict together.
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Reported and produced by Sarah Wyman, with Charlie Herman and Julia Press.
Transcript
Note: This transcript may contain errors.
CHARLIE HERMAN: Glasnost. In Russian, it literally means "openness."
And if you were around in the mid-1980s (like I was), you would have heard this word a lot. Because it was the name of a famous Soviet policy that meant more government transparency. It was the kind of thing you'd hear everywhere — from the news to Saturday Night Live's Weekend Update...
SATURDAY NIGHT LIVE: Glasnost. Which is the Russian way of saying, 'welcome back. Sorry about the frostbite.'
CH: But somewhere I did not expect to see glasnost was in a Superbowl ad for Pepsi.
PEPSI 1989 AD: [rock music plays]
CH: In the ad, a Russian kid in jeans and a flannel shirt bangs his head to the music while his dad tries to read the paper at the kitchen table. He says, "noise! noise!"
PEPSI 1989 AD: [in Russian]: You call that music?
CH: Then, cut to a group of teens in Red Square. A guy pulls up on a motorbike.
PEPSI 1989 AD: [music] Not very long ago, America introduced Pepsi to the Soviet Union.
CH: Next, a kid carrying a stereo skateboards past a group of babushka-wearing women.
PEPSI 1989 AD: And while it may be just a coincidence... A lot of refreshing changes have taken place ever since.
CH: Head-banging, flannel shirt kid pulls on his leather jacket and heads out the door. His uptight Russian dad puts down the paper and rolls his eyes: "kids!"
PEPSI 1989 AD: Pepsi. A Generation ahead.
CH: The whole thing was filmed in Moscow with about 20 Soviet actors, all speaking Russian. According to a Pepsi spokesperson at the time, this was only the second ad ever for an American product to be filmed in the Soviet Union. And the ad was called… Glasnost.
From Business Insider, this is Brought to you by... Brands you know, stories you don't. I'm Charlie Herman.
In the late 1980s, when U.S. and Soviet leaders had only just started meeting about opening up trade relations, well… Pepsi was way ahead of them.
For decades, one Pepsi executive had been flying back and forth between the U.S. and the USSR, meeting with foreign trade ministers, politicians, and regular Russians. His name was Don Kendall, and he negotiated a series of groundbreaking deals to make Pepsi the first American consumer product available in the Soviet Union. Deals involving vodka, and submarines, and even, a small fleet of warships.
At one point, Kendall — the CEO of Pepsi — would say to the U.S. national security advisor, "We're disarming the Soviet Union faster than you are."
Producer Sarah Wyman has the story.
Stay with us.
ACT I
SARAH WYMAN: Don Kendall passed away at the age of 99 last September. I couldn't interview him for this story, so everything I know about him, I've learned from other people. Like his son, Don Kendall Jr. I spoke to him shortly before his dad died.
DON KENDALL: I guess the easiest way, the best way to describe him is as a force of nature. You know, he's an alpha, um, and he's a silverback. And when he walked into a room, you know, people, people took notice.
SW: And Mike White. He's the former CEO of PepsiCo International. He worked with Don Kendall for years, and wrote a biography about him.
MIKE WHITE: He used to tell me he had enough wine in his wine cellar to drink until he was 105 and he intended to drink at all.
SW: Getting to know Don — as his friends and family call him — getting to know him this way has been kind of perfect. Because the man is a legend. You name an important historical figure from the twentieth century, and there is a photo of them hanging out with Don. Margaret Thatcher, Pope John Paul II, Anwar Sadat, Gerald Ford, Louis Armstrong...
DK: He and Satchmo, you know, spent weeks and weeks and weeks together, traveling through through Africa, for example.
MW: He was very close with Leo Tolstoy's grandson, who had immigrated to America.
DK: He got to know Mikhail Baryshnikov, when Baryshnikov defected. In our family lore, there's still some, some debate about whether he helped him defect.
CH: This is a man who talked his way into rooms with presidents and prime ministers. Richard Nixon played the piano at his wedding.
DK: When Nixon opened relations with China, dad was the one to deliver the message to Chiang Kai-shek in Taiwan saying that no matter what things, as things may seem, we will not forget our friend.
SW: The stories I've heard about Don are the kind that deserve to be told and retold around a campfire, or in a bar. Because Don is like the Paul Bunyan of American business. Every story about him is wilder than the one you just heard. Like, there's the time he was shot at by planes while swimming in a hotel pool in Lebanon. Or...
DK: Being run out of, you know having to flee Baghdad when they impaled the king….
SW: Don Kendall was, in short, an American business folk hero of the 20th century. And the trajectory of his life would have made a lot more sense if he'd been a Kennedy — somebody born into a rich and powerful family on the East coast. But that is not where Don's story starts. He was born in 1921, on a dairy farm in Sequim, Washington.
DK: All farmers work hard, but dairy farmers work very hard, because the cows have to be milked twice a day, and they were milking by hand. So my father's hands, for example, are these immense still, like at 99, he has these incredibly strong hands. And that was developed over the years just from milking cows.
SW: In high school, family legend has it, Don wanted to play football. Apparently his dad told him 'yeah, sure you can play football,' but only as long as he was home in time to milk the cows. So...
DK: In order to get back home from football practice, he would miss the bus. So he had to, you know, go to school early in the morning after milking cows, go to school all day, do the football practice, and then run home in order to get home in time to milk the cows.
SW: By the time Don was in college, the U.S. had entered World War II. Mike White, his friend and colleague, says Don finished three semesters at Western Kentucky State College. Then, over his Christmas break, he decided to drop out and enlist.
MW: And he was going to be a pilot in the navy. Now, Don had never flown before. So he went and took flying lessons, and then he told me the story of him, kind of flying underneath and looping the bridge, and you weren't supposed to do that. I said, 'well, that's quintessential Don.' He's a little bit of a wise guy, I think.
SW: After the war, Don got an entry-level job working on a bottling line at a Pepsi-Cola plant. But he was such a charismatic guy, such a salesman at heart, that before long, that is exactly what his job turned into.
In his first nine years at Pepsi-Cola, Don was promoted six times. From bottling to sales, to assistant national sales manager, to vice president in charge of marketing for the entire company. And in 1957 he was promoted a seventh time. At the age of 36, he became the president of Pepsi-Cola International.
DK: Expanding internationally was the way that Pepsi was growing.
SW: Again, Donald Kendall Jr.
DK: And they had to look for markets that weren't already occupied by Coca-Cola in a dominant way.
COCA-COLA AD: Bring home the Coke, bring home the Coke, everybody's happy when you bring home the Coke...
DK: Coca Cola had expanded to Europe as a result of World War II and had the U.S. Army essentially brought Coke with it, wherever it went.
MW: And so, Pepsi was never going to be a powerhouse in London, Paris or Rome. So Don, uh, early on when he began running international realized that he was going to have to make his mark in emerging markets. And in some ways these were back then poorer countries or countries with alternative economic systems like the Soviet Union.
SW: When Don started heading up the international business, Pepsi was sold in 60 countries. Within six years, he would almost double that number. But for decades, there was one country Don tried and failed to break into, over and over again. The Soviet Union became like his white whale. He'd get close enough to see it, have it just within his reach, and then something would interfere at the last minute. The first time this happened was in 1959.
DON KENDALL 2010 SPEECH: Thank you very much, thank you very much. It's, it's really a great pleasure and wonderful to be here…
SW: This video is from 2010. Don is giving a speech at an awards dinner for the Foreign Policy Association.
DON KENDALL 2010 SPEECH: Of course, when you're 89 years old, it's nice to be anywhere. (laughs)
SW: And he launches into a story you can tell he's told many, many times before. Because if you listen closely to what he's saying, he breezes past some extraordinary details.
DON KENDALL 2010 SPEECH: I was the first one to open up Russia. I went there actually in 1959 with Nixon when Nixon was Vice President. And a lot of you don't, probably don't remember that Eisenhower and Khrushchev at that time, wanted to try and get a relationship started between the two countries and Russia had a big exhibit over here and the U.S. had one in, in Russia.
SW: That "big exhibit" was the American National Exhibition in Moscow.
AP 1959: Vice President Nixon escorts president Khrushchev on a preview of the United States fair on Sokolniki park in Moscow.
SW: In the weeks after it opened, more than two and a half million Soviets would attend.
[US EXHIBITION IN MOSCOW CLIP]
AP 1959: The official opening of the American exposition...
SW: The Americans had built a giant Epcot-looking golden dome in the middle of the park. Outside, brand new Cadillacs spun around on rotating platforms. Inside, there were dishwashers, vacuum cleaners, boats!
AP 1959: And dedicated to showcasing the highest standard of life in our country...
SW: To stock this exhibition and make the U.S. look really cool for the Soviets, Vice President Nixon reached out to American companies. But you have to remember, this was in the middle of the Cold War. The U.S. was only a few years out of the red scare — when anyone even suspected of having ties to the Soviets could be investigated by the House Un-American Activities Committee. So, packing up a bunch of company merch and setting up camp in the middle of Moscow would not be great for PR back on American soil. For example, Nixon had asked the folks in Atlanta if Coca Cola wanted to go. And they said "no thanks."
DON KENDALL 2010 SPEECH: I decided to go over there. Most American companies were refusing to go, and I decided to go because our friend Atlanta Coca-Cola had most of the rest of Europe. They went in World War II and got a strong position in Europe. So I decided why not get Eastern Europe. And uh… [laughter]
SW: This was not the most popular decision Don had ever made. At least one Pepsi executive went around calling his trip to Moscow "frivolous" and "extravagant." A waste of money, basically.
DON KENDALL 2010 SPEECH: So the night before the opening, I told Nixon, I said, fortunately I knew Nixon, I said 'I've gotta get a Pepsi in Khrushchev's hands or I'm in trouble.' (laughs)
SW: Don had met Vice President Nixon at the White House a few years earlier. Nixon had held a meeting with American business leaders who were working internationally.
DK: And when Nixon was asking questions about what it was like to operate overseas, it was pretty clear in the meeting that most of these CEOs didn't have personal experience operating overseas. They themselves were not in charge of that. And when dad answered the question, it was very clear that he was traveling regularly all over the place. And that was the beginning of the friendship because Nixon realized that what this guy Kendall was saying was, you know, was true and was honest. And, and my dad was always very forthright. Um, he didn't, um, he didn't mince words.
SW: So, like Don was saying, he and Vice President Nixon were both at a dinner at the U.S. ambassador's house in Russia. Don got Nixon's attention on the receiving line, and he told him, 'I gotta get a Pepsi in Khrushchev's hands.'
DON KENDALL 2010 SPEECH: 'Or I'm in trouble.'
MW: And so it was a bit of a wing and a prayer. I mean, it was a typical Don Kendall kind of, you know, who knows what will come of this thing!
SW: On the day the American National Exhibition opened, Nixon and Khrushchev made a big show of cutting the ribbon and walking around together. A line of TV cameras and reporters snaked behind them as they made their way past all the cars and dishwashers. And then… inside the kitchen of a model American home...
AP 1959: A crackling exchange between Nixon and Khrushchev...
SW: Khrushchev was maybe getting tired of listening to Nixon go on and on about the joys of capitalism. So, he lashed back.
AP 1959: Says Mr. K, 'the Soviets will overtake America, and then wave "bye bye!"' (laughs)
SW: Khrushchev lifted his arm and wiggled his fingers in a tiny wave. Like Nixon, and the entire capitalist world, were a baby in a stroller. And then, the two of them launched into a "Kitchen debate" that didn't just make the news: it made history. They covered everything the whole world was thinking about:
AP 1959: ...the threat of atomic warfare...
SW: Atomic warfare, ultimatums, whose economic system was really the best...
AP 1959: [speaking Russian]
SW: It was a big deal. If journalists weren't already paying attention to the exhibition, they were now. And a couple of days later, they got a treat. Nixon led Khrushchev out to the pavilion, where Don Kendall was standing next to his Pepsi stand, ready to go.
MW: And so when Khrushchev shows up at the booth, Kendall's shrewd enough to say, 'I have two Pepsis here. This one's made in New York and this one's made in Moscow. I'd like you to try them, both Premier Khrushchev, and tell me which one tastes better.' Well he knew what the answer was going to be!
DON KENDALL 2010 SPEECH: Khrushchev tasted both of them, then turned to the press and said 'drink the Pepsico made in Moscow, it's much better than the one made in the United States!' [roaring laughter, applause]
DK: And he went around, Khrushchev, went around, pouring Pepsis made in Moscow for all the other dignitaries, um, and sort of, you know, became like this brand ambassador for Pepsi.
DON KENDALL 2010 SPEECH: And you can imagine the publicity we got around the world with Khrushchev handing out Pepsi, so... (laughs)
SW: Khrushchev alone drank seven or eight cups of the soda.
DK: Anyway, the story of the papers across the world the next day were this picture of Khrushchev handing out Pepsis and the headline read "Khrushchev learns to be sociable."
PEPSI 1950s AD: Be sociable, look smart!
DK: That was Pepsi's ad campaign at the time.
PEPSI 1950s AD: Be up to date with Pepsi!
DK: Yeah It was a PR coup for dad and got Pepsi all over the papers. And yeah. So that's the story.
PEPSI 1950s AD: Be sociable, have a Pepsi!
CH: A few years later, Don Kendall was promoted again. To CEO of the Pepsi-Cola company.
But his stunt at the American National Exhibition in Moscow didn't achieve the one thing he'd hoped for. It did not open the Soviet Union for Pepsi to do business. Because less than a year after Khrushchev and Nixon toasted with Pepsi in paper cups, diplomatic relations between the two countries skidded to a hard stop.
And so did Don's plans for Pepsi in the Soviet Union.
That's after the break.
ACT II
CH: We're back.
By 1971, more than a decade after Don Kendall's first trip to Moscow, a lot had changed. Vice President Nixon was now President Nixon. And after years of terrible relations with the Soviet Union — the Cuban Missile Crisis, the Berlin Wall, the Vietnam War — Nixon and Alexei Kosygin the new Soviet Premier, were ready to give peace another shot. It was a new thaw in the Cold War.
Here's Sarah again.
SW: The story of how Don Kendall got Pepsi into the Soviet Union a second time is almost as good as the first one. This time, he flew to Moscow in 1971, for an international business conference. Here's how Don told the story himself in an interview years later, starting with his agreement with Prime Minister Kosygin:
DON KENDALL 2015 INTERVIEW: I made our first agreement with Prime minister Kosygin, who incidentally was very interested in opening up the market. And we negotiated ten plants and it was difficult going in there, a lot of things you had to do that you didn't have to do in other countries, but it worked out very well, and it just took a little patience.
SW: So, they were finally going to build Pepsi plants in the USSR. Sounds simple. But here is what happened behind the scenes.
At the business conference, Don and a small group of businessmen were invited to meet the Soviet Prime Minister — Kosygin. Don had… planned for exactly this kind of opportunity. Somehow, he'd managed to get a novelty transistor radio shaped like a Pepsi can through security, and he gave it to Kosygin as a gift. Kosygin thought it was hilarious. That night, he found Kendall at dinner and was like: 'hey, do you still want to bring Pepsi into the Soviet Union? Find our minister of foreign trade tomorrow, and he'll make it happen.'
OSCAR SANCHEZ-SIBONY: At this meeting, what you have is, uh, Kendall, talking to the deputy minister of foreign trade, this is very typical...
SW: Oscar Sanchez-Sibony is a professor at the University of Hong Kong. He studies Soviet economic relations and the international political economy.
SW: It's the exact intersection of my current obsessions. (laughs)
OSS: If only there were more people like you! Then I would have a career!
SW: Sanchez-Sibony is one of very few people alive who's spent time researching how American companies did business in the USSR. Because, frankly, there weren't that many businesses to study.
OSS: (laughs) It's interesting because I feel like there's a pervasive idea among everybody during the Cold War that the Soviets really, all they want is autarky. They don't want to, they don't want to do anything with the rest of the world because it'll be exploitative in some sense, because Marxist doctrine says so.
SW: That was definitely the messaging most Americans were hearing. Communists? Oh yeah, they don't want to trade with us. But, in fact, the Soviets did want to trade with other countries. Because they wanted to be a global superpower, and to do that, they needed money. So while most Americans might have had the impression that trading with the USSR was a non-starter...
OSS: The business people disabuse themselves of these ideas fairly quickly, because as soon as they talked to the Soviets, they were like, 'no, no, no, please, we want your stuff and we will trade for it.'
SW: But that was easier said than done. Because the Soviets didn't have access to US dollars. And their currency — the ruble — couldn't be converted to dollars, or any other kind of currency. It's like if you went to an exchange booth at an airport and offered them a stack of Monopoly money.
So, if Don Kendall wanted to trade with the Soviets, there were a couple of ways around that. First, the Soviets did a lot of something called compensation trade.
OSS: Compensation trade is when a Western company gives equipment to the Soviet Union and the Soviet Union is going to pay back that company, not in money or cash, but in the production of the factory that that equipment is going to be a part of.
SW: In Pepsi's case, here's what that would have looked like: Don and Pepsi would have set the USSR up with all the equipment it would need to produce Pepsi. We're talking concentrate, factories, bottling machinery. And in exchange, the USSR would have put aside some of the Pepsi it produced and sent it back to the company as payment, until the equivalent of Pepsi's investment had been paid off in soda.
But Pepsi already had plenty of Pepsi. The last thing Don needed was for the USSR to send him a bunch of Pepsi, which he would then have to ship out to franchisees around the world who were… already making their own Pepsi.
So, in his meeting with the Soviet Foreign Trade Minister, Don asked about a second option: barter.
OSS: Barter is an instant exchange of things for things.
SW: The Soviet Union did a lot of this with smaller countries. And oftentimes, both countries would come to the table with trade lists. Things they were trying to get rid of on one side, and what they were angling to get from the other country on the other side. The Soviets, who were trying to industrialize, wanted technology. Machines. But what did Pepsi want?
MW: I mean, it was, it was complicated.
SW: Again, Mike White. Former CEO of PepsiCo International and friend of Don Kendall's.
MW: And so it, because it was going to be a bartering transaction, cause it was no hard currency to trade. And, anything in Russia back then, and I was there in the seventies, the options for supply were limited. You couldn't get nylon stockings, you couldn't get blue jeans. There were a lot of things that we were told, 'bring those, and you can trade them for stuff when you go to Russia.'
SW: … what could the USSR possibly give Pepsi that Don could then find a way to re-sell and turn back into money? Well, there was one thing that the Soviets happened to have a lot of. More than they could drink themselves.
DON KENDALL 2010 SPEECH: So we decided to bring Stolichnaya over here, the Russian vodka. (laughs) That's how we got our money out, we got into the vodka business. (laughs)
SW: In order to bring Stolichnaya vodka to the United States, Pepsi had to get creative. It turns out there was already a company sitting on the exclusive rights to distribute Russian vodka in the US. So if Pepsi wanted to be able to make money off Stolichnaya, it had to buy that other company.
MW: So they literally started up a liquor business, which is very unique, it's regulated and it's a very unique set of channels of distribution. That's a whole different business, which Pepsi wasn't in that business back then.
SW: I mean, this all sounds really hard, for lack of a better word. (laughs) Why would Pepsi go to all this trouble?
MW: Well, I, you know, again, I think when, when you're, when you've got a brand franchise, uh, and, and you truly, your aspirations are to be a global franchise. You know, I mean, you know, you, you gotta fish where the fish are. When you're the number two, you've got to try harder. And so you gotta be more creative. You gotta be more willing to try things, to take risks. And that was Don.
SW: By 1972, Don Kendall and the Soviets had signed a ten year contract, making Pepsi the first "American consumer product" available in the USSR. It was on grocery store shelves by the end of 1973.
But back at home, Don was fighting his own war. A cola war, against Coca Cola. And he wanted to protect the gains he was making abroad.
Oscar Sanchez-Sibony showed me some documents and memos from Don's meetings with the Soviet Ministry of Foreign Trade. They were declassified by the Russian government a couple of years ago. And there's one detail from that 1971 meeting, when Don and the Soviets shook on their deal, that Sanchez-Sibony says is really unusual.
OSS: Pepsi wants to make sure that the Soviets don't negotiate with Coca Cola.
SW: Don Kendall wanted exclusivity. He wanted the Soviets to promise that Pepsi would be the only cola sold in the USSR, and that it would be the monopoly supplier of Russian vodka in the United States.
Sanchez-Sibony says Don kept meeting with Soviet foreign trade officials in the years that followed. But their conversations changed. Like when he met with Mikhail Kuzmin — a Soviet deputy minister of foreign trade — in 1974.
OSS: And, and Kuzmin doesn't seem to be interested in talking about Pepsi and possible negotiations, which of course the only thing that Kendall wants to talk about. And instead he goes on a tirade about how the EXIM bank of the United States, which is the, the kind of the bank that finance exports, uh, is not, uh, you know, behaving, it's not lending the money and it's creating all these problems. And he clearly wants Kendall to go back to the United States and talk EXIM bank into playing ball.
SW: So he's like, 'thank you so much for coming. I'm not interested in talking about Pepsi, but can you help me solve this other problem that I have with the US.'
OSS: That's right! Yeah, yeah, yeah.
SW: Basically, the Soviets saw Don as a gateway to the American business community. They weren't getting anywhere with the U.S. government, so they wanted Don to work with them to help arrange more trade between American companies and the USSR. And maybe the most astonishing part about this is… Don did it. More than most American politicians or government officials, he was instrumental in helping American businesses get into the USSR. And not just his own.
OSS: One of the things I don't understand quite from these documents is what Kendall was after. Was it, was it really just the business? Uh, what kind of market potential did he think the Soviet Union had, uh, or, or is that not at all? Uh, what, what did he was after? I just… I don't know! But he organizes American business!
SW: Don Kendall set up meetings between the Soviets and executives from Chase Manhattan. He helped organize a new American-Soviet chamber of commerce to help other companies draft trade lists the way Pepsi did. He connected chemical companies and technology companies — the types of businesses the USSR really wanted to work with — to Soviet departments. Sanchez-Sibony says, those industries stood to gain much more economically from doing businesses with the Soviet Union than did Pepsi did. That's where the real opportunities and the real money was.
OSS: And so chemical companies should be spearheading these kinds of but instead it's Kendall. So maybe you know why. (laughs) I don't.
CH: After the break, we learn why Don Kendall worked so hard to strengthen America's business ties with the USSR. And, what happened to Pepsi when the Soviet Union fell apart.
ACT III
CH: We're back.
On Don Kendall's watch, Pepsi's operations in the Soviet Union just kept growing. Between 1970 and 1980, the company opened bottling plants in Moscow, Siberia, Estonia, Kiev, Tashkent, Kazakhstan, and Georgia. Those plants produced millions of 12-oz bottles of Pepsi, which sold for 40 kopeks a pop.
But Don — and Pepsi — were not done yet. Here's Sarah again.
SW: In 2003, Mike White was the CEO of PepsiCo International. It was the same job Don had had when he first flew to the Soviet Union and got Khrushchev to drink Pepsi. And just like Don had done, Mike White was getting ready to hop on a plane to Moscow. PepsiCo — which Don had merged with Frito-Lay back in the sixties — was opening its first Frito-Lay snack plant in Russia.
MW: And by then Don was probably 85 years old and I called him and asked him if he would be willing to come with me to cut the ribbon, to open the plant. And, you know, I knew it would be a big deal for him and it would be good for the company from a public relations standpoint. But even I didn't realize Don Kendall going to Russia is like bringing a rockstar. I mean, um, I, I, you know, it didn't matter whether it was Yeltsin or even Putin, they all know who Don Kendall was when he came.
SW: White says this is because Don put in time with the Russians. He drank vodka with them — and it helped that he could hold his liquor. He got to know Russian families, and hosted them in the United States. His son, Don Kendall Jr. remembers how whenever the Russians came to visit, they would bring him and one of his brothers gifts...
DK: They would bring medals... And, you know, this is an early age where, when I thought like medals were just the coolest thing in the world. Um, and so when we had our bathrobes, um, when we would come down to dinner to present ourselves, we would have these medals on our bathrobes. And I just remember that being just super cool.
SW: What kind of medals were they? Were they actual, like—
DK: I have no idea what kind of medals they were. They were Russian medals! (laughs)
SW: By the mid-1980s, Soviet-American relations were warming up. Other US companies were starting to think about doing business with the USSR. And, clearly, Don Kendall was miles ahead — in terms of his relationships with the Soviets and his business experience.
He'd built an entire team at Pepsi — called the exports team — full of native Russian and Ukrainian speakers. They had sales experience, knew how American and Soviet trade laws worked, understood foreign currency, and could navigate complicated deals with the Foreign Trade Ministry in the USSR.
So, when the USSR's new president — Mikhail Gorbachev — rolled out a bunch of new government reforms and opened his arms up wide to international trade, even journalists were calling Don to ask… what happens now?
DON KENDALL 1987 INTERVIEW: Mr. Kendall, you've had success, but dealing with the soviets on business is not exactly a day at the beach, is it?
DON KENDALL: (laughs) No, I think the best way to describe doing business with the soviets and the bureaucracy you have to work through is if you think about coming to the United States and having to go to the state department, and the commerce department, food and drug administration...
SW: Don had mapped his way through a big maze of bureaucracy while other companies — like Coca Cola — were still trying to figure out where the entrance was.
SW: In fact, the executives at Coca Cola had been keeping an eye on Don and Pepsi's expansion in the USSR for years. In 1973 — one year after Pepsi made the Stolichnaya vodka deal — Coca-Cola tried it out for itself. According to the documents Professor Sanchez-Sibony has seen, the Soviets — who of course already had Pepsi — were not interested.
SW: They're like, 'okay, we've got that covered. Like we have one Cola brand now, why would we want another one?'
OSS: Yeah, 'why would we have another?' It makes no sense. It's not going to make a better product. It's not going to lower prices. That's not how the Soviet economy works. Which is why when Coca-Cola finally comes to the Soviet Union, the Soviets seemed to be harder edged, uh, with how they carry on negotiations. Cause they just don't need Coca-Cola —
SW: As badly as Coca-Cola needed them at that point.
OSS: Right.
SW: In 1976, Coca Cola tried again. But it would be almost a decade before Coca Cola built its first plant in Russia.
By 1989, it was starting to look like Pepsi was selling as much Stolichnaya in the United States as it could. But Pepsi wanted to open more manufacturing plants and sell more soda in the USSR, so it needed to find something else the Soviets could pay with. And that's when they came up with warships. Valued at three billion dollars, Pepsi negotiated the largest ever agreement between an American corporation and the Soviet Union. And that three billion dollars was made up of 17 submarines, a cruiser, a frigate, and a destroyer.
The following year, Pepsi and the USSR made another deal along the same lines for oil tankers and freighter ships.
SW: So Kendall was really playing the long game.
MW: Yeah, absolutely. And, you know, investing in a relationship that it took a lot of years, but eventually it, it paid off.
SW: But that particular deal never came to fruition. Because in the early 1990s, the Soviet Union collapsed.
ABC NEWS: In Moscow, the hammer and sickle is lowered for the last time, and an era comes to an end. The tricolor banner of the Russian Republic now flies over the Kremlin.
SW: For Pepsi, this was like having a major client go out of business. Suddenly, the specific bureaucracy Don and his team had spent years building expertise about... Well, it no longer existed. The people and departments they were used to dealing with were replaced by countless new systems and trade laws and currencies. Russia and all the other countries that had made up the Soviet Union were anyone's game. Mike White, who was working at PepsiCo at the time, said that made it a watershed moment for Coca Cola.
MW: Once the Soviet Union started to collapse and it opened up, it was like the Wild West all over again. And so, you know, our primary competitor, the Coca-Cola company came in and was able to in effect, start over again by building new plants. So we almost kind of went from an advantage to a disadvantage overnight.
SW: I mean, was it frustrating to feel like you guys had an advantage in Russia and also like you'd figured out how to work in this very complicated system that you'd invested years of time and years of relationship building to work out and then to have the whole thing fall apart and have to figure out how to find your way in again?
MW: Well it, yeah. But you know, in business you can't afford to stay frustrated too long or you go out of business because business is all about the future. So yeah, I mean, for a nanosecond, but then we were onto: how are we going to, how are we going to do this? How do we going to compete and how do we get our business reshaped for a new Russia? And, and that was, you know, what we set about doing.
SW: In the decade that followed, Coca-Cola spent hundreds of millions of dollars building plants in Russia and flooding the market with its product. In recent years, the company has sold more soda in Russia than Pepsi. But PepsiCo doesn't just sell soda. It owns other companies with operations in Russia — like Frito-Lay, Pizza Hut, and one of the country's leading juice companies. Pepsi's impact on Russia was important, and lasting.
AP 2015: [footsteps, camera flashes]
SW: In 2004, at the age of 83, Don Kendall returned to Moscow.
AP 2015: [Putin speaking in Russian]
SW: Vladimir Putin presented him with a medal. The Russian Order of Friendship. He said: "For many years, you have been helping to promote relations between the peoples of Russia and the United States of America."
AP 2015: [Cameras flashing, people speaking in background, Kendall receiving pin]
SW: He sat across a table from Don, and the two of them talked about Russian-American relations while reporters snapped pictures from every angle. Don Kendall Jr. says this was one of his father's proudest moments.
DK: You know it's not the recognition by Putin that mattered to dad, but it was the fact that, he really, you know, how many years is that? Like 50 years? Some enormous amount of time that he was promoting that building bridges, um, and, and being willing to be unpopular and, and telling the Russian side of the story when nobody was interested in the Russian side of the story. Making connections between countries that are supposed to be enemies, um, I think is dad's legacy.
SW: Everyone I've talked to who knew Don has told me the same thing: he was good at his job because he cared about people. And at first I thought that's the kind of thing that everybody says about their friends. But when I talked to Don Kendall Jr., he told me about how his dad took him and his siblings with him when he traveled the world. How, when it felt like everyone in America had their minds made up about the Soviets, Don encouraged them to meet people who lived there before jumping to conclusions about them.
DK: The very first time I landed in Moscow, as a kid, I literally, I mean, it, it sounds silly to say this, but I literally thought that that, that, that entire country would be black and white. I mean, like gray, right. I didn't realize that there would be color. (laughs) I mean, it's just, it's an absurd thing to say, but like, that was my impression. And when you, when you land there and you realize like, oh my God, these people are friendly and they're giving you hugs and they're inviting you to their house and they're sharing things with you that they, um, the, the, the Russians are very generous people. Um, it just, it just sort of exploded all the myths that I landed there with.
SW: I've heard Don Kendall Senior say this thing in interviews — that executives should go out and "kick tires." You can't run a company from an office. You have to go see the business for yourself, and make your decisions from there.
I think Don was literally talking about tires when he said that. Like on Pepsi trucks driving across the country. But the same attitude explains why he worked so hard to get Pepsi into the USSR.
DK: Doing a deal with the Russians, nobody had done the deal with the Russians. Nobody knew whether they would renege on their promises. Right? And, and you know, why were they doing the deal? Could they be, could they be trusted? Could they be business partners? So he just saw that, I mean, from, from his own trips over there and the friendships he formed, um, so he believed it.
SW: It's important to acknowledge: things with Russia aren't great right now. And it feels naive to pretend that business and some good 'ole hand-shaking and dealmaking could untangle the gigantic political mess between our countries. But, from everything I've heard about Don — this man who flew planes under bridges, delivered messages to world leaders, and poured a Pepsi for Khrushchev at the height of the Cold War — from all I've heard about this American Business Folk Hero, I don't think that's the takeaway he would have wanted me to have. I think he would have told me, like his son did, and like his friends did, that business isn't the solution: relationships are. And we shouldn't give up on our relationships yet.
DON KENDALL SPEECH: I guess I've always had a great belief that I'm an eternal optimist, Roger. And I think in this business, you have to be an optimist and you have to be a risk taker. You have to gamble, or things don't happen.
CH: That's Don Kendall, former CEO of PepsiCo. And Sarah Wyman, producer here at Brought to you by...
CREDITS
CH: If you're fascinated by the history of the Cold War like we are, then you're in luck! Next week, we're staying behind the Iron Curtain — but this time, we're going to East Germany, where even the Berlin Wall was not enough to keep Levi's jeans out of the country.
LEVI'S CLIP: The people that they had in the commercials were exactly the way we wanted to be. And they were where we wanted to be. So the easiest way to be a little bit part of this American coolness were to wear some Levi's.
CH: And, check it out ... the American National Exhibition in Moscow makes a return appearance!
Special thanks this week to Dave Wyman — that's Sarah's grandfather. He told us to look into this story a couple months ago. Thanks also to David Woodruff and Claire Banderas and Tyler Murphy at Insider.
The family of Roger Enrico and the folks at the Foreign Policy Association kindly allowed us to use recordings of Don Kendall. You also heard news coverage from the AP, British Pathé, and ABC News.
This episode was reported and produced by Sarah Wyman, with Julia Press and me, Charlie Herman.
Sound design is by Bill Moss. Music is from Audio Network. John DeLore and Casey Holford composed our theme. Our editor is Micaela Blei. Dan Bobkoff is the podfather. Sarah Wyman is our executive producer.
Brought to you by... is a production of Insider Audio.