Introduction:
On May 30, 2025, “the first new-style tea brand listed on the U.S. stock market,” Chagee(霸王茶姬), released its first post-IPO earnings report: revenue for Q1 2025 reached 3.39 billion CNY (approx. 475 million USD), a 35.4% year-on-year increase; net profit was 677 million CNY (approx. 95 million USD), up 13.8% YoY. While these figures appear impressive, hidden behind them are slowing growth, declining single-store performance, and cash-burning overseas expansion. The capital market responded with a drop in shares—shares fell 3% at the opening post-announcement, reducing their market cap to $ 5.8 billion USD. This report has reignited discussion on the sustainability of Chagee’s business model and that of China’s freshly prepared tea industry as a whole.
I. Financial Performance: High Growth and Regional Concentration Coexist
According to the report, Chagee’s total Q1 GMV was 8.227 billion CNY, up 38% YoY; total revenue reached 3.39 billion CNY, up 35.4%. The Q1 2025 net profit margin was 20%, roughly consistent with its full-year 2024 margin of 20.3%, which was well above the industry average of around 16%. This is Chagee’s first financial report since its IPO and follows its aggressive store expansion in 2024.
In 2024, Chagee’s global store count jumped from 3,511 to 6,440, an 83.4% increase. Of these, 6,512 stores were in Greater China, and 169 were overseas. As of March 31, 2025, the total number of stores reached 6,681, up 63.6% YoY, with 241 new stores added in Q1 alone. Its product development, expansion scale, and process standardization have drawn continued industry attention.
Unlike Mixue Bingcheng and Guming, which focus on lower-tier markets, Chagee centers on tier-1 and tier-2 cities, with over 60% of stores in these areas. It positions itself as “the best value in premium tea” and “the most refined among franchise tea brands,” occupying a unique niche in the 20 CNY (~2.80 USD) price band. From a single-store efficiency standpoint, Chagee remains robust among its premium peers, with a 2024 daily GMV per store of 17,057 CNY, which is 2–5 times that of other premium brands and nearly three times higher than in 2022. As the top brand in the 17 CNY and above segment, it is poised to continue enjoying category leadership.
However, its franchise model is beginning to expose structural risks. Franchise and materials sales now account for 38% of revenue, but this has pushed the accounts receivable period from 28 days in 2023 to 45 days, putting pressure on cash flow. In addition, only 3.2% of its revenue comes from international markets, mainly Southeast Asia, lagging behind Mixue Bingcheng, whose overseas revenue comprises 11% of total income.
II. Business Model: Differentiated Positioning and Supply Chain Negotiation
Chagee has precisely targeted the light milk tea segment with its “Fresh Milk with Original Tea Leaves” series—flagship products like “Boyajuexian” (Bo Ya’s Broken Strings) appeal to consumers with a healthy, high-quality image, aligning with their demand for low-sugar, low-fat, low-calorie drinks. This differentiation has enabled it to stand out in a highly competitive market. In 2024, 35% of newly launched milk teas across the industry were light milk teas, spanning 90% of all brands. Chagee is the undisputed leader in this segment.
Its commercial model can be summarized as: “Asset-light franchise + cultural premium + vertically integrated supply chain.”
It operates under a “1+1+9+N” structure: 1 subsidiary, 1 directly operated store, 9 model stores, and N franchise stores—enabling rapid expansion.
Unlike Nayuki, which has over 90% self-owned stores, 97.4% of Chagee’s stores were franchises supported by standardized models as of December 31, 2024. Strict selection policies (only a 15% acceptance rate) have ensured low closure rates—just 0.5% in 2023 and 1.5% in 2024—significantly outperforming Mixue Bingcheng (3.48% in 2023) and Guming (6.8% in 2024).
Operational standardization has been key: the top three products account for over 60% of domestic gross merchandise value (GMV), and the “Fresh Milk with Original Tea” series comprises 91%. This focused product structure reduces supply chain complexity and keeps R&D expenses low at just 1.6%, while ensuring product consistency and enabling scalable franchise operations.
In branding, Chagee integrates Eastern cultural storytelling into product names, store design, and IP collaborations. Store interiors evoke traditional Chinese aesthetics, and product names are poetic—e.g., “Wànxiàng Chūnhé” combines Biluochun tea with passion fruit. This cultural integration has boosted brand identity and consumer loyalty.
Supply chain control is also crucial. While remaining conservative within traditional tea formats, the brand has expanded into adjacent innovations such as pure teas and freshly brewed teas, drawing inspiration from coffee system practices. It owns tea plantations in Pu’er, Yunnan, and operates six regional warehouses across China, lowering leaf procurement costs to 70% of the market average.
However, its model depends heavily on product sales to franchisees, which account for 60% of revenue. This has led to higher raw material costs compared to industry averages. Overseas, the supply chain faces more challenges. In North America, high operating costs and localization requirements (e.g., the U.S. “Supply Chain Security Act,” which requires over 50% of ingredients to be locally sourced) exceed the capacity of Chagee’s Southeast Asian tea farms.
Notably, innovation and supply chain go hand in hand. The new product LightYin·Boyajuexian uses supercritical CO₂ decaffeination, appealing to health-conscious consumers. These innovations elevate product competitiveness while simultaneously demanding higher supply chain coordination. Conversely, supply chain efficiencies enhance brand differentiation. With strict controls over raw materials and standardized production, Chagee maintains consistent quality and a strong market reputation.
Compared to competitors, its “middle-path” strategy is unique—it avoids Mixue’s low-price war and Nayuki’s high OPEX by leveraging franchises. But this model relies heavily on brand momentum. In Q1 2025, sales and marketing expenses soared to 299 million CNY (approx. 42 million USD), up 166% YoY, driven by product launches, advertising, and staff expansion. Its marketing expense ratio hit 8.8%, well above the 4.5% of the previous year.
Rapid franchise expansion also poses a risk to quality control. Complaints on Black Cat Consumer Complaint Platform rose 23% YoY in 2024, mainly over food safety and misleading promotions. Intensifying competition forces continuous marketing investment, but consumer price sensitivity is rising. This “high marketing, low repurchase” loop could threaten long-term profitability. Additionally, with short product lifecycles common in freshly made tea, overreliance on a single category can limit risk resistance. Cross-category incursions—coffee, fruit tea, etc.—pose additional challenges to customer retention.
III. Market Demand Outlook: Structural Opportunities Amid Slowing Growth
China’s fresh tea market once experienced explosive growth, benefiting from upgrades in consumption. But signs of growth deceleration are becoming evident. In 2023–2024, the sector experienced explosive expansion: Chagee’s revenue surged 844% and 167%, and net profit rose 983% and 214%, making it the fastest-growing brand. Mixue Bingcheng remains the top player, with over 46,000 global stores and 97.5% of its revenue coming from supply chain sales.
However, disparities are widening. Of the four newly listed tea companies in 2024, two had net profit margins of under 10%, far below those of leading players, which ranged from 15% to 20%. This reflects a shift from incremental growth to stock competition, requiring brands to refine market exploration.
Despite the slowdown, the high-end segment remains promising. From 2024 to 2028, high-end tea (≥17 CNY/cup) is expected to grow at a 17.8% CAGR. Consumers increasingly value quality, health, and brand identity. Chagee’s “Fresh Milk with Original Tea” aligns perfectly with this trend, utilizing higher tea ratios and premium sourcing to secure a foothold in the high-end tier.
Functionality and occasion-based consumption also revitalize the market. For example, Chagee’s “tea instead of alcohol” concept for weddings enhances cultural relevance and creates new social-use scenarios. From January to September 2024, it served 1.5 million cups at weddings, parties, and corporate celebrations. National Day group orders increased by 300% year-over-year. These innovations extend product lifecycles and uncover growth in a saturated market.
Internationally, markets vary. Southeast Asia shares cultural ties but differs in taste—e.g., Indonesian consumers prefer sweeter flavors, demanding localized research and development. In North America, tea remains a niche market, with fierce competition from Starbucks and others that enjoy strong brand loyalty. Despite Chagee selling over 5,000 cups on its first day in the U.S., retention and cross-selling remain unclear, underscoring the long lead time and high cost of consumer education overseas.
IV. Competitive Landscape: Intensified Headwinds and SME Squeeze
Industry consolidation is accelerating. In 2024, 106 chain tea brands opened 4,000 fewer stores YoY, and closed 5,000 more. This reflects rapid market pruning and pressure on small-to-mid-sized players.
Chagee’s earnings affirm the “three-tier” structure in China’s tea sector:
- High-end: HeyTea, Nayuki (avg. ticket >30 CNY)
- Mid-range: Chagee, Chabaidao (15–30 CNY)
- Low-end: Mixue Bingcheng
Chagee’s “store densification plan” aims for 4,000 new stores by 2025, which may intensify regional competition.
Top players leverage scale, supply chain, and brand power to secure market share. Mixue Bingcheng’s value strategy fueled expansion across China and overseas—it now has more stores globally than Starbucks. Luckin Coffee, through its “coffee + tea” hybrid and rapid new launches, continues drawing traffic away from pure tea brands.
Though Chagee thrives on cultural storytelling and differentiated branding, 93.8% of its revenue comes from franchise supply sales, exposing it to quality and safety risks. In 2024, thousands of complaints were logged related to food safety, threatening long-term brand equity. Amid fierce competition, the brand must strike a balance between scale and quality control.
This inaugural earnings report reflects China’s transition from chaotic growth to refined operation in the new-style tea industry. In the short term, scale effects may support growth. However, in the long term, the real test will be whether Chagee can strike a balance between cultural richness and standardization, as well as franchise speed and quality assurance. As the market enters an elimination round, supply chain efficiency and user asset management may become the true moats of competition.
[Disclaimer]: The above content reflects analysis of publicly available information, expert insights, and BCC research. It does not constitute investment advice. BCC is not responsible for any losses resulting from reliance on the views expressed herein. Investors should exercise caution.