Pepsi for Soviet Vodka : $3-Billion Swap OKd in Moscow

Pepsi-Cola signed a $3-billion deal today to more than double production and sales of soft drinks in the Soviet Union in exchange for ships and the rights to sell more Soviet vodka in the United States.

In addition to Stolichnaya vodka, Pepsico Inc. will receive at least 10 Soviet-built ships in exchange for Pepsi under the barter agreement. Pepsico Executive Committee Chairman Robert Kendall called the deal the largest trade pact ever between a U.S. company and the Soviet Union.

The barter arrangement is necessary because Soviet law prohibits foreign companies from taking profits out of the country in hard currency and the Soviet ruble is not convertible to other currencies.

Kendall said Pepsi had been willing to work under a barter system to establish itself in the huge Soviet market.

“If you had a convertible ruble it would solve a lot of problems,” he said. “(But) if you wait for a convertible ruble, by the time you have a convertible ruble somebody else will have the market.”

The deal signed in Moscow today extends and expands a 1972 agreement for Pepsi to produce and sell soft drinks in the Soviet Union until the year 2000. It covers an estimated $3 billion in total sales of Pepsi in the Soviet Union and Stolichnaya in the United States.

Kendall said about 1 billion servings of Pepsi are now sold each year across the Soviet Union. Pepsi imports and sells 1 million cases of vodka in America through Monsieur Henri Wines Ltd. of White Plains, N.Y.

Under the agreement, Pepsi will invest more than $1 billion to upgrade existing facilities and increase the number of its bottling plants in the Soviet Union from 24 to 50.

The agreement also calls for the development of plastic bottles and cans for soft drinks in the Soviet Union, where the drinks are now sold only in glass bottles, said Anatoly Belichenko, first deputy chairman of the Soviet Commission on Food and Procurement.

Belichenko said that after the expansion “all big Soviet cities will have a Pepsi bottler. Our goal is by the year 2000 that a bottle of Pepsi will be within a 10-minute walk for all Soviets.”

But the Soviet official added that with the Soviet Union’s current per capita consumption of soft drinks at about 7 gallons a year, there is no likelihood of catching up to the United States, where he said consumers drink an average of 49.4 gallons of soft drinks annually.

“We prefer milk and water,” he said with a laugh.

The most unusual part of the Pepsi-Soviet deal involves the American company taking part of its profits in the form of at least 10 Soviet freighters and tankers that will be leased internationally through a Norwegian partner.

“We think we’ll have the same success marketing Soviet ships as we have marketing Soviet vodka,” Kendall said.

Today’s deal also calls for investments in equipment and supplies to allow opening two long-delayed Pizza Hut restaurants in Moscow, expected this summer.

At one point, Pepsi announced that Pizza Hut--a Pepsico subsidiary--would be the first American fast food restaurant in Moscow. But McDonalds has since opened its popular hamburger outlet in the Soviet capital, while the Pizza Hut locations remain empty.