In 1990, an American soft drink company received seventeen submarines from the Soviet Union. Not blueprints, not paperwork—actual diesel submarines moored at naval bases in northern Soviet territory. The deal also included a cruiser, a frigate, and a destroyer. The Soviet Union had no hard currency to pay for shipments of Pepsi syrup.
The ruble was virtually worthless outside the country. Instead of money, the Soviet side offered what it had in abundance: warships. The company’s chairman called the White House and told the National Security Advisor, “We’re disarming the Soviets faster than you are. ” That phone call gave rise to the enduring legend that for a few weeks, a soft drink company possessed the sixth largest navy in the world.
Historians have been quick to dismiss that claim, and rightly so. The submarines were old, decommissioned vessels that were almost immediately sold to a Swedish company for scrap. But the ships were real. The transaction was real.
The documents still exist in the archives. The company was Pepsi. And what makes that scene truly remarkable is this: seventy years earlier, the very same company had gone bankrupt. Then it went bankrupt a second time.
Its founder died as a pharmacist in a small southern town after losing virtually everything he owned. The man who later bought what remained of the business approached Coca-Cola and offered to sell them the entire formula. Coca-Cola refused—not once, but three separate times. By the end of the twentieth century, that rejected formula employed more than 200,000 people, negotiated with Soviet General Secretaries, set Michael Jackson’s hair on fire during a live commercial shoot, and became the catalyst for street riots that claimed lives.
The story of 1990 begins in 1893 in New Bern, North Carolina, a small port town on the swampy Atlantic coast with barely 7,000 residents. Caleb Bradham had studied medicine at the University of Maryland, but his family ran out of money before he could finish. He returned home and opened a pharmacy on the corner of Middle Street and Pollock Street. Like most pharmacies of the time, his store featured a soda fountain.
Carbonated water was widely believed to aid digestion, and pharmacists mixed it with their own proprietary syrups. Every druggist had a formula of his own. Bradham combined sugar, vanilla, flavoring oils, and kola nut. The result was a drink that, according to his own calculations, was supposed to help relieve dyspepsia—indigestion.
Local customers simply called it Brad’s drink. It became so popular that in 1898, Bradham gave it a proper name: Pepsi-Cola. The name came from dyspepsia and the kola nut. Coca-Cola had been created in Atlanta in 1886, seven years earlier, in almost exactly the same way.
A pharmacist, a soda fountain, and a homemade syrup. America in the 1890s was filled with hundreds of drinks just like these. Almost all of them disappeared. The difference between the brands that survived and those that vanished was rarely the recipe itself.
By 1903, Bradham had registered the trademark and left the pharmacy business behind. By 1910, Pepsi had more than 250 bottling franchises across twenty-four states. The company advertised in newspapers, hired race car driver Barney Oldfield to promote the drink, and sold its syrup by the barrel. By 1915, Bradham had built a three-story factory, purchased a house overlooking the Neuse River, and become one of the most prominent men in the county.
He served as president of the local bank and commanded a company in the National Guard. For two decades, everything moved in only one direction: upward. Then Bradham made a single mistake, and it cost him everything. The First World War reshaped the global sugar market.
Europe’s sugar beet fields had been devastated, supply chains had collapsed, and the US government imposed sugar rationing. When those restrictions were lifted in 1919, sugar prices began to soar. By the summer of 1920, sugar was selling for more than twenty cents per pound, and almost everyone in the industry believed the price would keep climbing. Bradham believed it too.
He borrowed heavily and bought enormous quantities of sugar in advance. By December 1920, sugar had fallen below four cents per pound. Bradham found himself sitting on warehouses full of sugar he had purchased for five, six, even seven times the current market price. He tried to wait for a recovery.
It never came. In 1923, Pepsi-Cola declared bankruptcy. Its assets were auctioned off. Bradham returned to the counter of his pharmacy in New Bern, where he worked until his death in 1934.
The trademark was purchased by New York stock broker Roy Megargel. He invested his own money, attempted to relaunch the business, and struggled for eight years to keep it alive. In 1931, Pepsi went bankrupt for the second time. At different points in its history, Pepsi’s owners approached Coca-Cola with essentially the same offer: take the brand, take the formula, name your price.
This happened three times, first in the early 1920s and again in the early 1930s. Historians still debate the exact details because the surviving documentation is incomplete, but one fact is supported by evidence from both sides. Coca-Cola said no. Every single time.
The brand was eventually picked up by Charles Guth, a hard-nosed businessman who owned the Loft chain of candy stores. Each of his stores had a soda fountain, and for years he had purchased Coca-Cola syrup. Guth asked the company in Atlanta for a wholesale discount that matched the size of his business. They refused.
He took it personally. Instead of accepting the decision, Guth bought the bankrupt Pepsi brand and removed Coca-Cola from every Loft store, replacing it with his own drink. The first year was a disaster. Customers ordered Coca-Cola, received Pepsi instead, and complained.
Then, in the middle of the Great Depression, Guth came up with an idea that changed everything. Coca-Cola was sold in a six-and-a-half-ounce bottle for five cents. Guth discovered a plentiful supply of inexpensive twelve-ounce beer bottles left over after Prohibition ended and began bottling Pepsi in them. The price stayed exactly the same—five cents—twice as much drink for the same money.
In 1934, roughly 15 million Americans were unemployed. Every penny mattered. Sales began to climb and never stopped. In 1939, Pepsi launched the radio jingle “Nickel, Nickel” to the melody of an old English hunting song.
It was broadcast nationwide, translated into dozens of languages, and sung by ordinary Americans in the streets. It became the first advertising jingle in history to achieve nationwide popularity. In 1938, Walter Mack became president of Pepsi. He looked at the company’s sales map and noticed something the rest of the soft drink industry had largely chosen to ignore.
More than 13 million black Americans were buying soft drinks, yet no major beverage company was speaking to them directly. In 1947, Mack hired Edward F. Boyd and asked him to build an all-black sales team. Boyd assembled a group of twelve sales representatives who traveled across the country working with neighborhood stores, churches, schools, and local newspapers.
He also commissioned a series of advertisements portraying black families as ordinary middle-class consumers—not servants, not stereotypes, simply customers. They were operating in a segregated America. The team could not stay in most hotels or eat in most restaurants along their routes. In many southern cities, they were met with threats.
Even within Pepsi, some executives opposed the campaign, and several bottlers openly refused to distribute the new advertising. Despite all of that, Pepsi’s sales among black consumers rose dramatically. It became the first major national advertising campaign in the United States to portray black Americans as ordinary people. When Walter Mack left the company, the program gradually lost support.
In the summer of 1959, the American National Exhibition opened in Sokolniki Park, designed as a showcase of American capitalism in the heart of the Soviet Union. Donald Kendall, then head of Pepsi’s international division, set up a Pepsi stand at the exhibition. The day before the exhibition opened, he caught up with US Vice President Richard Nixon and asked for a single favor: bring Nikita Khrushchev to the Pepsi stand. The following day, Nixon and Khrushchev toured the exhibition together.
They argued over kitchen appliances and standards of living in what would later become famous as the Kitchen Debate. Then Nixon led Khrushchev to the Pepsi booth. The photograph spread around the world: the First Secretary of the Communist Party of the Soviet Union standing with a paper cup of Pepsi in his hand. According to the popular story, he drank several cups in succession.
Kendall became president of PepsiCo in 1963 and spent the next thirteen years negotiating with Soviet officials. In 1972, he achieved something no other American consumer brand had managed. Pepsi received the exclusive right to sell its soft drinks in the Soviet Union. Coca-Cola was not allowed into the country.
The Soviet Union, however, had a problem. It had nothing with which to pay. The two sides eventually agreed on a barter arrangement. Pepsi would supply its syrup concentrate while receiving the exclusive rights to import Stolichnaya vodka into the United States.
Soft drinks in exchange for vodka. For fifteen years, the arrangement worked remarkably well. It began to unravel in the late 1980s, when American consumers increasingly boycotted Soviet products following the Soviet invasion of Afghanistan, and sales of Stolichnaya declined sharply. A new commodity was needed to keep the barter system alive.
That is how in 1990, a contract worth more than three billion dollars came to include seventeen submarines, a cruiser, a frigate, and a destroyer—all of which Pepsi promptly resold for scrap metal. One year later, the Soviet Union ceased to exist. With it disappeared the entire trading system that had made the deal possible. While Pepsi struggled to untangle the collapse, Coca-Cola finally entered the Russian market and, within just a few years, overtook the rival that had spent two decades building it.
In 1975, Pepsi launched an advertising campaign built around what looked like a simple experiment. A small table would be set up in a shopping mall, where two identical unmarked cups, one filled with Pepsi and the other with Coca-Cola, were offered to passing shoppers. They were asked one question. Which one tastes better?
Everything was filmed. Most people chose Pepsi. Pepsi is sweeter and delivers a stronger first impression, while participants in the challenge took only a single sip. Over the course of an entire bottle, many people might have reached a different conclusion, but the audience never saw that.
Coca-Cola’s own internal taste tests confirmed the same uncomfortable result. On April 23, 1985, the company changed the formula of a drink that had remained essentially unchanged for ninety-nine years. New Coke was sweeter and, in blind taste tests, outperformed both Pepsi and the original Coca-Cola. America exploded.
Coca-Cola’s headquarters received as many as 1,500 phone calls a day. Customers bought cases of the original Coke and stored them in their garages. Pepsi declared a company holiday and released advertisements celebrating what it called a victory. Seventy-nine days later, Coca-Cola brought back the original formula under the name Coca-Cola Classic.
Now comes the darkest chapter of the story. In February 1992, Pepsi launched a promotion in the Philippines called Number Fever. Three-digit numbers were printed under bottle caps, and every day a winning number was announced on national television. The grand prize was one million pesos, about $40,000 at a time when the average annual income was roughly $1,000.
People bought soft drinks by the case, collected bottle caps, and even slept with them under their pillows. By Pepsi’s own estimates, nearly half of the country’s adult population—around 26 million people—took part. Then came May 25. The winning number announced on television was 349.
The problem was that the number 349 had not been printed on just a handful of bottle caps. It had been printed on approximately 800,000 of them. The number was supposed to belong to the non-winning list, but its security code was not properly checked before production. Had Pepsi honored every winning cap, the company would have faced obligations of roughly $32 billion.
The next morning, crowds gathered outside Pepsi factories holding bottle caps marked 349. The company announced that only caps bearing the correct security code were valid winners, and almost none of the caps in people’s hands contained that code. Technically, the company was following the official rules. But for someone who had watched their number appear on national television and had already imagined buying a house or paying for their children’s education, it felt like a betrayal.
Riots broke out. Crowds hurled stones at Pepsi factories and offices. Pepsi trucks were overturned and set on fire in the streets. In February 1993, a grenade was thrown at one of the company’s delivery trucks in Manila.
A school teacher and a five-year-old girl were killed, and several other people were injured. Around five people had lost their lives, dozens had been wounded, and more than thirty vehicles had been destroyed. Pepsi offered affected participants 500 pesos as a gesture of goodwill—about $18 at the time. Nearly half a million people accepted the payment.
The legal battle lasted for more than fifteen years, and in the end, the Philippine courts ruled in the company’s favor, concluding that the incident had been a technical error rather than an act of deliberate fraud. There are two more stories from the 1990s worth knowing. On January 27, 1984, during the filming of a Pepsi commercial at the Shrine Auditorium in Los Angeles, the pyrotechnics were triggered too early and Michael Jackson’s hair caught fire. He suffered second and third-degree burns.
As part of the legal settlement, Jackson received $1. 5 million, which he donated to the burn center at Brotman Medical Center. Many of Jackson’s biographers believe that the pain medication prescribed after this accident marked the beginning of the dependency that would follow him for the rest of his life. In 1996, Pepsi launched its Pepsi Stuff promotion.
As a joke, one commercial claimed that seven million Pepsi points could be redeemed for a Harrier jump jet. A college student named John Leonard noticed that additional points could legally be purchased with cash. He raised $700,000 from investors and mailed Pepsi a check requesting the aircraft. Pepsi refused.
Leonard sued. In 1999, Judge Kimba Wood ruled that no reasonable person would interpret the commercial as a genuine contractual offer, and the case was dismissed. The case is still cited today in contract law textbooks. Today, PepsiCo generates roughly $92 billion in annual revenue and employs around 300,000 people worldwide.
The company’s 1965 merger with Frito-Lay brought brands such as Lay’s, Doritos, and Cheetos into the business. Later came Quaker Oats, Tropicana, and Gatorade. Today, the company’s largest profits come not from beverages but from snack foods. Pepsi never truly won the battle for the soda fountain.
It simply left the soda fountain behind and conquered a different aisle of the supermarket. In 1996, Russian cosmonauts aboard the Mir space station performed a spacewalk carrying a mock-up of a Pepsi can nearly the size of a human being as part of an advertising campaign. Pepsi reportedly paid around five million dollars for the promotion. A remedy for indigestion invented by a medical student who never finished medical school, working in the pharmacy of a town with barely 7,000 residents.
A business that went bankrupt and then went bankrupt again. A brand that Coca-Cola refused to buy three separate times. A drink that survived only because someone found a supply of cheap beer bottles after Prohibition. That little syrup outlived the Great Depression, built its business in segregated America, persuaded Nikita Khrushchev to stand in front of the cameras with a paper cup in his hand, accepted military submarines as payment, pushed its biggest rival into one of the most expensive marketing mistakes in history, accidentally set Michael Jackson’s hair on fire, sparked riots on the other side of the world, and ultimately made its way into orbit.
Not bad for a syrup that was originally meant to soothe an upset stomach.