Beverages giant Coca-Cola is negotiating the acquisition of a large stake in Indian chain Cafe Coffee Day (CCD) as part of a move to gain traction in the territory against a drop in demand for carbonated drinks.

Executives expect the deal, if it goes ahead, to hedge risks for the firm by taking advantage of a growing market sector in the territory.

“The potential stake acquisition is being driven by Coca-Cola’s headquarters in Atlanta and officials from the beverage maker’s global team are engaged in active talks with the Coffee Day management,” said an executive with knowledge of the matter. “It would give Coca-Cola significant scale in the fast-growing cafe business, compared to aerated soft drinks, which have been slowing down.”

Coca-Cola has claimed that news of the potential deal is speculative.

CCD is India’s largest coffee chain, with 1752 locations as of March this year. Starbucks India, by contrast, operates just 146 stores.

“Cafe Coffee Day introduced India to the café culture back in the 1990s and has been able to build a massive footprint,” commented private equity professional Jaspal Sabharwal, “but the chain badly needs some innovation and facelift. There has been plenty of innovation in the cafe industry in recent years, but not enough of it has come from giant brands. Coca-Cola can play a very good role in this space.”