Chagee's performance decline cannot be solely blamed on the price war

After the delivery subsidy transition, Chagee's pressure in the third quarterly report is evident.

In the third quarter, Chagee added 300 new stores, bringing the total number of stores to 7,338.

Against the backdrop of a 36.7% year-on-year increase in membership to 222 million, total GMV declined by 4.5% year-on-year to 7.93 billion yuan, with a quarter-on-quarter decline of 3.5% and 2.1% in the first and second quarters, respectively.

Expansion is still ongoing, and the decline in GMV cannot simply be attributed to the decision of "not engaging in price wars."

Since the fourth quarter of last year, Chagee's same-store GMV has been in a year-on-year decline; the net profit attributable to the parent company has also declined for two consecutive quarters, with the net profit margin dropping from 18% in the third quarter of last year to 12%.

As the peak period for opening stores passes and single-store revenue declines, it indicates that the market dividend for its category is waning.

At the earnings conference, CEO Zhang Junjie emphasized promoting a "high-quality development strategy" centered around brand, product, experience, and channels.

In recent years, beyond ordinary commercial district stores, Chagee has developed unique store types such as 24-hour stores, pet-friendly stores, and super tea warehouses.

As Starbucks prepares to expand into lower-tier markets with Chinese capital and aims for 20,000 stores, Chagee, which maintains its brand positioning, is starting to appear more like Starbucks in certain aspects.

Under the dual pressure of industry price wars and its own slowing growth, will this devout Starbucks apprentice repeat the expansion and profitability dilemmas that Starbucks once experienced?

Behind "Not Engaging in Price Wars"

Looking back at the summer when delivery subsidies swept the industry, Chagee was one of the few tea brands that almost did not participate in the "delivery war."

This significantly siphoned off its cup volume.

In the third quarter, Chagee's total GMV in Greater China was 7.63 billion yuan, a year-on-year decrease of 6.2%; the average monthly GMV per store was 378,500 yuan, a year-on-year decline of about 28.3%.

At the same time, the franchise business, which contributes nearly 90% of the company's revenue, has shrunk, with related revenue declining by 14.8% year-on-year to 2.8 billion yuan.

Behind "not engaging in price wars" is the intertwining of multiple operational difficulties.

Chagee is currently under the dual pressure of bottoming out single-store performance and intensified overall competition in the tea beverage industry.

Compared to the vast majority of ready-to-drink tea players, Chagee's store opening speed is extremely fast, with many stores opened during the brand's influencer effect period.

In the year leading up to its IPO in 2024, Chagee added over 3,000 new stores, many of which may not have yet entered a stable operating phase.

Moreover, Chagee adopts an extreme single-product strategy, with a highly concentrated product structure, where its core products are both traffic-generating and profit-generating.

In 2024, the GMV share of Chagee's top three best-selling products in the Chinese market has reached about 61%. If the core products are forced to lower prices due to price wars, it will directly impact single-store profitability.

Especially in an environment where the light milk tea category has been generally pressured to 9.9 yuan by peers, if Chagee rashly participates in a price war, it will not only struggle to make a profit but also jeopardize the brand value established over the long term.

Chagee's reliance on core products seems to be deepening, and its significantly slowed product launch pace has already attracted external attention. From 2022 to 2024, Chagee's new product launches were 14, 22, and 15 respectively, with only 4 in the first half of this year.

Even on the day of its 8th anniversary, Chagee only announced an upgrade to the tea base of its classic product "Bo Ya Jue Xian."

As Chagee's top-selling item, "Bo Ya Jue Xian" has sold a total of 1.25 billion cups from 2022 to June 2025.

Some analysts believe that the prolonged low profile may indicate that Chagee is "holding back a big move."

Management revealed at the earnings meeting that they will fully promote the rollout of the 4.0 menu and "introduce exciting new categories such as specialty tea drinks," while also optimizing the display methods during the product preparation process to further enhance customer experience.

Additionally, they will expand more consumption scenarios, including breakfast and evening periods, to improve store utilization at different times.

After all, if the declining sales trend of individual stores cannot be reversed quickly, the stability of the store network may face challenges.

Recent market news indicates that Chagee plans to iterate its traditional raw material equipment sales model by 2026 to a fixed revenue share based on store GMV, meaning that brand revenue will consist of fixed discounts and brand service fees.

Under the new model, brand income will be directly linked to franchise performance, which will encourage headquarters to more actively assist franchisees in increasing revenue and controlling costs.

According to sources close to Chagee, this adjustment is true and may start as a pilot in some stores, with the core goal of narrowing the profit gap between franchise stores and reducing the number of poorly performing stores.

Currently, Chagee's store network remains stable, with a closure rate of 0.3% for three consecutive quarters.

"Eastern Starbucks" Gamble

The term "Eastern Starbucks" has appeared multiple times in the blueprint described by founder Zhang Junjie.

This not only points to a vision of globalization but also signifies a strategic ambition to define categories through the brand.

Chagee has proposed selling "three cups of tea."

"The first cup of tea" refers to the main business of freshly made tea drinks represented by "Chagee."

"The second cup of tea" is "Chagee Now," which started in Shanghai in March this year. The store size has been reduced to 30-50 square meters, with locations focusing on office clusters, and the current store count is nearly 20.

Chagee Now's products mainly consist of "Chinese-style tea" and "tea lattes," and the menu includes baked goods such as croissants, Swiss rolls, mochi, and egg tarts to cater to the needs of office workers for refreshment and light meals.

In the future, leveraging the brand effect and store network of Chagee and Chagee Now, they will further develop the "third cup of tea," which is the retail of pre-made tea beverages.

However, tea has a relatively weak addictive quality, and even strong single products may face challenges with low repurchase rates.

Focusing solely on "tea" as the narrative core means that Chagee is unlikely to create new increments through coffee business like Mixue and Gu Ming.

In Chagee Now stores, Chagee has promoted the slogan "Either Coffee or TeaPresso." For Chagee, which finds it difficult to adapt its store model to the sinking market, the only available paths now are overseas expansion and continuing to strengthen its brand upward.

Domestically, Chagee enhances brand experience by creating "tea spaces" and various cultural theme stores.

Overseas, it focuses more on establishing a high-end image.

For example, in October this year, Chagee successfully opened a new store in Bangkok, Thailand, located in the landmark building King Power Mahanakhon, at a height of approximately 300 meters above ground, making it the "highest" store.

In addition to providing tea services, the store also features a product display area, launching various limited-edition merchandise such as aroma stones and silk scarves.

In the third quarter, Chagee added 300 new stores, of which about 50 are located overseas, entering the Philippine and Vietnamese markets, and surpassing the milestone of 200 stores in Malaysia.

Overseas GMV exceeded 300 million yuan, with a year-on-year growth rate exceeding 75% for two consecutive quarters.

However, the overseas market also faces the challenge of declining store efficiency.

Since the first quarter of this year, the same-store GMV in the overseas market has turned negative, with a year-on-year decline of 23.4% in the third quarter, gradually approaching the decline rate of the mainland China market.

As the newly opened overseas stores are mainly direct-operated, related costs have significantly increased.

In the third quarter, the operating costs of Chagee's direct-operated stores rose by 94.7% year-on-year to 270 million yuan, compounded by factors such as equity incentives that pushed management expenses up by 59.7% to 520 million yuan.

In this quarter, Chagee did not provide financial guidance; instead, it announced a special dividend: CFO Huang Hongfei announced that the company would conduct its first cash dividend, totaling approximately 177 million USD.

Although this move can temporarily soothe the market, it cannot solve the fundamental problem of declining single-store performance. Chagee's "high-quality" narrative still requires new products and new models to bring tangible performance support