What’s the big deal about barter?

One of the world’s largest ever barter deals was between PepsiCo and the Soviet Union back in the 1990s. The deal was worth a staggering $3bn or $6bn in today’s money, whereby PepsiCo traded its soft-drink Pepsi-Cola for warships and Stolichnaya vodka.

Why barter?

Pepsi’s intention wasn’t to create a navy of drunken sailors, but instead this titanic-sized deal was in fact a strategic move to help them expand into the Russian market.

Prior to PepsiCo’s barter deal, they shipped their soft-drink in syrup form to the Soviet Union, which was then diluted and distributed in somewhat clunky bottles, which wasn’t the most cost effective method, however, their huge barter deal paved the way for a more profitable distribution process, using aluminium cans and plastic bottles, doubling their sales into the Soviet Union over the following decade or so.

As for the Russian warships and vodka, although neither really fitted within PepsiCo’s typical product line and perhaps weren’t exactly suitable for its retail customers, this didn’t render the deal useless, and as such the warships were sold-on for scrap metal, and the vodka was imported and sold throughout the US by Monsieur Henri Wines Ltd.

Barter and the “double coincidence of wants”!

This huge deal is a great example of the economic phenomenon called ‘double coincidence of wants’, albeit engineered by PepsiCo and the Soviet Union.

PepsiCo pre-organised the sale of the vodka and warships, creating the ‘want’ from their side, allowing them to successfully barter with the Soviet Union, who wanted Pepsi-Cola, however, the Soviet’s currency the ‘Ruble’ wasn’t widely accepted or exchanged globally, creating a barrier to trade, hence bartering the vodka and warships.

If anyone from PepsiCo or Russia gets around to reading this, you can now trade your Pepsi-Cola, Ships and Vodka on baggl!

Summary of why and how barter can work:

• Barter isn’t just limited to swapping apples for pears and vice versa. A deal can be as simple or as complex as simple you wish to make it. This can include using a combination of cash, product and barter credits, in the case of baggl.
• Barter is a great well of extracting value, if someone offers you a product or service that you don’t normal sell e.g. a holiday, a car, £10k worth of video product, in lieu of payment.
• Barter helps your business to keep the financial expenses low.
• Barter helps your business to stay flexible by not making big financial investment.
• Barter helps your business to make use of unused and unwanted assets.
• Barter helps your business to make use of bad performing services.
• Barter helps your business to minimise inefficiencies and waste of assets.

Learn more about the benefits of barter in our article “What are the Pros and Cons of Bartering?“