Last Friday, Chagee, a leading chain of tea drinks from China, went public on Nasdaq. On its first trading day, the share price closed almost 16% up, giving the company a market cap of US$5.95 billion. 

Will Chagee become the “Starbucks of tea” globally? 

In its IPO prospectus, Chagee gave an impressive set of numbers: 6,440 outlets as of 31 Dec 2024, a 83% growth YoY; RMB29.5 billion (US$4 billion) GMV in 2024, growing 173% YoY;  each outlet sold an average of 52,000 cups a month in 2024; and Chagee has 177+ million registered members with whom the company has direct touch points. 

For a 8 year old company whose 32 year old founder did not have any formal education (a rarity in China which mandates 9 years basic education), the achievement is way beyond many’s expectations. 

Chagee’s first day stock performance was also a bright spot during the current market turmoil caused by Trump’s trade war. The fact that a Chinese company was allowed to list (think of SHEIN) was already a surprise to many. 

How is Chagee doing beyond what you can read in the IPO prospectus? Why would it rush to list now instead of waiting for calmer waters? 

Some thoughts: 

  1. Chagee was a central topic to every discussion we had with investors and retail/F&B executives in China over the last two years. The company’s rapid expansion amid macro economic headwinds in a very competitive field impressed everyone. “They seemed to have done everything right,” a veteran tea chain operator told us last year. “Not making any major mistake for such a large and young organisation is impressive.”
  2. Many VC investors we spoke to regretted passing on the opportunity to invest in Chagee when they could. A memo from XVC detailing how it decided to invest in Chagee and convinced the founder to make a few changes was widely circulated amongst the VC community.
  3. The founder, Zhang Junjie, could easily be looked down upon because of his lack of shiny CV or even basic education. I was on a conference panel with him in 2021 on Chinese F&B brands expanding overseas – and I overheard other brands murmuring that he would not go very far. “Chagee is basically a shameless copycat of Chayanyuese,” I remember one person saying, referring to another tea chain from Changsha, China’s capital of night life and F&B.
  4. What impressed me about Mr Zhang back then was his clarity that Chagee would need to become an international brand, and he had tried different models in Singapore, Malaysia and Thailand. While many people talked about going overseas, he had already learnt valuable lessons through these trials. The operations in Malaysia went well and expanded to more than 100 stores. After it negotiated a separation with its license holder in Singapore, Chagee came back to Singapore on its own in summer 2024 with a much bigger bang.
  5. Why the urgency to go public? While Chagee is still charging ahead, some worrying signs start to emerge: especially the declining same store sales, a key indicator of the health of a chain. From Q4 2023 to Q4 2024, Chagee’s same store store sales dropped 18.4% from RMB574k to RMB456k. Some of our investor friends have spoken extensively with Chagee’s franchisees to confirm the trend. Has the company run out of growth momentum (and prime locations)?
  6. History has told us that while it is easy for an insurgent milk/bubble tea chain in China to grow rapidly, it is much harder for them to defend the turf once young consumers’ taste shifts. We have seen the rise and decline of Hey Tea, Naixue, and many others. ChaPanda, another tea chain which went public in Hong Kong in 2024, has recently also seen a sharp decline of sales and fleeing of franchisees. The share price has declined a quarter since listing a year ago.
  7. Chagee could be facing a much larger risk as 1) it is strongly associated with a single product (Jasmine milk tea); and 2) its stores are of much larger format (and therefore need more sales to breakeven). Chagee team definitely knows this very well. We heard that it is recently testing a smaller store format. IPO at this time is definitely more optimal than waiting any further. And it is pushing forward with global expansion more resolutely than its other Chinese peers. 
  8. There are a few signs of this push: 1) the choice of “CHA” (which means “tea” in Mandarin Chinese) as the stock ticker symbolises ambition to catch a category; 2) Chagee’s revamped logo since 2022 bears eerie resemble to that of Starbucks; and 3) the team has been working towards opening up in the US market – the first store is opening in Westfield Century City mall in Los Angeles.
  9. The international ambition is definitely a very tough one – it requires a lot of leadership commission, people and organisational capabilities and wider consumer acceptance of Chagee’s products (beyond the Chinese speaking core). Just look at the backlash Chagee faced in Vietnam last month after using (probably innocently) a map that showed “nine dashed lines” in the South China Sea. However, do note that four years ago, almost nobody believed that Chagee would become a major player in China’s highly competitive tea chain arena. 
  10. Luckin Coffee, which now has more than 20,000 stores, is in a better position compared to Chagee, because: 1) coffee has a more flexible mindshare amongst consumers (i.e. Luckin can launch jasmine green tea, while Chagee will find it hard to convince consumers to buy Americano from them), allowing Luckin to weather through consumer taste changes; 2) Luckin’s typical store format is much smaller, allowing more nimbleness and flexibility; and 3) Luckin will not need to educate international consumers what coffee is.
  11. In many other ways – especially the digitisation of store operations, user operations and product development – there are good similarities between Luckin and Chagee. Both are now aiming at launching into the US market – whether they can succeed or not, a very good business case study is being written. 

Congratulations to Chagee, its team, and its investors. Good luck with the further expansion.