Correction to this article

PEPSICO'S special relationship with Russia began in 1959. Richard Nixon was showing Nikita Khrushchev around the American National Exhibition in Moscow. He made him stop at a kiosk hawking Pepsi-Cola. A young executive named Donald Kendall thrust a cup of dark fizz into the Soviet leader's hands. The resulting photo (see above) was a terrific advertisement in a country where capitalist propaganda was banned.

Half a century later, Mr Kendall, who later became Pepsi's chief executive, flew back to Moscow with Indra Nooyi, who has the job today, to receive Vladimir Putin's blessing for Pepsi's takeover of Wimm-Bill-Dann, Russia's biggest food company. They won the Russian prime minister over by talking about the billions of dollars Pepsi has invested in Russia. It was the first American consumer-goods maker to enter the Russian market, 15 years after Khrushchev first sipped its wares. On December 2nd Pepsi announced that it would buy 66% of Wimm-Bill-Dann for $3.8 billion and launch a mandatory tender offer for the rest of the company.

Wimm-Bill-Dann sells fruit juice, baby food and dairy products. Its name sounds like “Wimbledon”, because one of its founders loves tennis. It is a rare Russian success story, thanks to high-quality brands and clever marketing, which was jazzed up by Tony Maher, the company's Irish-born chief executive, after he took over in 2006. It is listed in New York. Pepsi has had a greedy eye on it for years.

The main obstacle was that Danone, a French dairy giant, also wanted to buy it. Until this year Danone owned 18% of Wimm-Bill-Dann. It sold its stake in August, when it decided instead to acquire Unimilk, a big Russian dairy firm. This cleared the way for Pepsi.

Russia will now be Pepsi's second-biggest market, after America. It will also be a battleground in the cold war against Coca-Cola. Earlier this year, Coke bought Nidan, a big Russian seller of fruit juice. Coke now controls 30% of the Russian fruit-juice market. Pepsi, which in 2007 bought Lebedyansky, Russia's leading maker of juice, will now have 40%.

The takeover of Wimm-Bill-Dann is also part of Pepsi's strategic shift away from products that are bad for you (or “fun for you” in Pepsi-speak), such as cola and crisps, to products it calls “better for you” or even “good for you” such as porridge (Quaker Oats), fruit juice (Tropicana) and sports drinks (Gatorade). Its core business remains sugary drinks and fatty crisps, but the so-called Global Nutrition Group (the healthy stuff) accounts for $10 billion of annual turnover, one-sixth of the total, which will increase to $13 billion after the takeover of Wimm-Bill-Dann. Pepsi wants the Nutrition Group to be a $30 billion business by 2020.

There is a limit to how much people in rich countries can drink, so the growth opportunities for companies like Pepsi lie mostly in emerging markets. As Russia's middle classes have more disposable income, they are trading up from plain milk to newish luxuries such as cottage cheese and yogurt. (When Wimm-Bill-Dann started selling yogurt in Russia in 1993, local newspapers wondered whether it was sweet kefir or warm ice-cream.) The Russian dairy market increased in size by 22% between 2006 and 2010 and is forecast to grow by 12% in the next four years. “Russian demand for consumer goods has increased from an abnormally low level to a normal level,” says Mikhail Krasnoperov at Troika, an investment bank in Moscow.

Just add vodka

Some analysts worry that Pepsi is overpaying for Wimm-Bill-Dann. Doing business in a country racked by corruption and ruled by thugs is seldom simple. However supportive the Kremlin may seem, there is always a chance that it will suddenly raise taxes on milk. But Pepsi may be safe. The Russian government considers some dark liquids to be “strategic”, but not cola. It meddles in formerly state-owned industries, but it has taken a hands-off approach to private companies that were created from scratch.

Others fret that Pepsi's Russian adventure will distract it from the task of integrating two bottling companies, PepsiAmericas and Pepsi Bottling Group, which it bought last year for $7.8 billion to increase its control over its product. Hugh Johnston, Pepsi's chief financial officer, seeks to allay these fears. He argues that recent deals in the Russian consumer sector had similar price tags. He adds that Pepsi has already squeezed as much extra efficiency out of those bottling plants as it had hoped.

Even so, buying Wimm-Bill-Dann is a bold move. Ali Dibadj of Bernstein Research says it will help define Ms Nooyi's legacy. Mr Kendall was lucky with his bet on Russia, but he was a lone pioneer in a country that was short even of shoddy goods, let alone nice ones. Ms Nooyi is betting that Russian consumers still have lots of catching up to do.





Correction: The original version of this article referred to Vladimir Putin as Russia's president. (How could we have got that idea?) He is of course the prime minister. This was corrected on December 10th 2010.