Chagee has reported its financial results for the third quarter of 2025. The Yunnan-based teahouse chain recorded net revenue of RMB 3.208 billion (USD 449.1 million), down 9.4% year-on-year (YoY) from RMB 3.541 billion (USD 495.7 million) in Q3 2024. Revenue also declined sequentially from RMB 3.392 billion (USD 474.9 million) in Q1 and RMB 3.331 billion (USD 466.3 million) in Q2.
By business model, franchised teahouses generated RMB 2.812 billion (USD 393.7 million) in revenue this quarter, compared with RMB 3.299 billion (USD 461.9 million) a year earlier. The company attributed the decline to rising consumer price sensitivity, which it said was exacerbated by subsidies offered by food delivery platforms.
Founded in 2017, Chagee gained traction in China’s beverage market by emphasizing tea quality and minimalist packaging design. The chain has been under scrutiny following its Nasdaq debut on April 17, when it raised USD 411 million. Shares opened at USD 33.75, briefly pushing its market capitalization past USD 7.5 billion. Since then, its stock performance has cooled, and both revenue and profit have declined for three consecutive quarters.
During its Q2 earnings call, founder Zhang Junjie reiterated that Chagee would avoid aggressive discounting, calling it a harmful tactic. Analysts have noted that Chagee’s price range of RMB 15–22 (USD 2.1–3.1) leaves limited room for price wars given its higher-end positioning. The company’s narrow product diversification also constrains its ability to adjust margins through delivery-only menu offerings.
Same-store GMV continues to fall
Chagee’s profitability weakened in Q3. Operating profit reached RMB 454 million (USD 63.6 million), with a margin of 14.2%, compared with RMB 794 million (USD 111.2 million) and a 22.4% margin a year earlier. Adjusted net profit declined 22.2% to RMB 503 million (USD 70.4 million) from RMB 647 million (USD 90.6 million), while net profit margin slipped from 18.3% to 12.4%.
Gross merchandise value (GMV) fell to RMB 7.93 billion (USD 1.11 billion), down 4.5% YoY. The figures for Q1 and Q2 were RMB 8.23 billion (USD 1.15 billion) and RMB 8.1 billion (USD 1.13 billion), respectively. Same-store monthly GMV dropped from RMB 528,000 (USD 73,900) in Q3 2024 to RMB 378,500 (USD 52,900) in Q3 2025, marking five consecutive quarters of decline. The downturn was most pronounced in the Greater China region.
The data suggests Chagee’s challenges extend beyond delivery-platform discounting. Since 2023, competitors such as Heytea and Naixue have expanded aggressively into lower-tier cities through franchising. While Chagee’s capital-backed expansion helped it rise to the top tier of milk tea brands, it now faces a crowded market and slowing growth.
As of September 30, Chagee operated 7,338 stores, including 6,971 franchised locations, with 6,836 in Greater China. While rapid expansion increases visibility, it can dilute per-store revenue. For brands targeting mid- and high-end consumers, growth has slowed as China’s spending stratifies.
Often described as the “Chinese apprentice” of Starbucks, Chagee has modeled parts of its business after international coffee chains. It targets white-collar consumers with a light-asset, high-efficiency model, operating stores averaging 60–80 square meters, typically located in shopping malls and high-traffic areas. It has also opened larger stores, such as its 1,000-square-meter flagship outlet in Hong Kong.
These strategies reinforce its premium image but limit flexibility in adapting to shifting consumer behavior. The company’s reliance on repeat purchases of a few core drinks is now under strain.
Fewer new products, slower innovation
Zhang has summarized Chagee’s philosophy around three pillars: emphasizing Chinese cultural branding, maintaining midrange pricing, and driving repeat purchases through tea latte–based products. Chagee’s product range remains compact, with about 25 SKUs, roughly half that of most competitors. Its signature Boya Juexian, a jasmine green milk tea drink, remains its main driver.
According to Frost & Sullivan data cited by 36Kr, Chagee sold 1.25 billion cups of Boya Juexian between 2022 and mid-2025, generating an estimated RMB 20 billion (USD 2.8 billion) in revenue based on an average price of RMB 16 (USD 2.2) per cup. The company said its top three SKUs account for 60–70% of total sales.
Product launches have slowed in recent years, with 14, 22, and 15 new items introduced from 2022 to 2024, respectively. So far in 2025, only eight new drinks have been launched, two of which are low-caffeine and floral variations of Boya Juexian. None have matched the original’s success. In contrast, Heytea launched 60, 63, and 48 new products annually from 2022–2024, while GoodMe, ChaPanda, and others released similar volumes. Even Luckin Coffee has expanded into tea-based beverages to attract younger consumers.
Chagee has also pulled back on marketing. Sales and marketing expenses in Q3 totaled RMB 304 million (USD 42.6 million), down 13.4% YoY. The company described this as a prudent adjustment to its promotional strategy.
Searching for growth beyond China
Despite headwinds, Chagee continues exploring new avenues for growth. According to 36Kr, it plans to launch a new line of beverages in mid-December. R&D spending rose to RMB 53.6 million (USD 7.5 million) in Q3, focused on product innovation and supply chain optimization. Executives said upcoming initiatives include expanding its product matrix, introducing a new menu, and enhancing in-store experiences for breakfast and late-night consumption.
Chagee’s overseas performance remains a bright spot. As of Q3 2025, it operated 262 overseas stores including 196 in Malaysia, 22 in Singapore, 17 in Indonesia, 14 in Thailand, eight in Vietnam, three in the Philippines, and two in the US. Overseas GMV exceeded RMB 300 million (USD 42 million), up 75.3% YoY and 27.7% quarter-on-quarter.
Industry sources told 36Kr that Chagee has become a “national brand” in Malaysia, a status attributed to its localized marketing and strategic partnerships. In September, it collaborated with Pop Mart’s Hacipupu IP on a limited-edition collection that reportedly achieved record sales.
While overseas outlets, especially in Southeast Asia, are performing strongly, Greater China still accounts for 96.2% of total GMV. For franchised beverage chains, international expansion has become a hedge against domestic saturation. However, success depends on supply chain resilience and financial strength. Naixue’s brief foray into Japan in 2020 ended within a year, and its latest reports cite the closure of several underperforming overseas stores.
Still, Chagee’s fundamentals remain stable. Q3 marked its 11th consecutive profitable quarter, with positive cash flow and no interest-bearing debt. As of September 30, its registered membership base reached 222 million, up 36.7% YoY, while its store closure rate stayed at 0.3%, well below the industry average of 2–10%.
The key challenge now lies in reengaging domestic consumers. Chagee’s shares closed at USD 13.73 on December 8, more than 50% below its IPO price. Citi expects same-store sales to remain under pressure next quarter but maintains a buy rating, citing shareholder-focused initiatives while labeling the stock a high-risk opportunity.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Xie Yunzi for 36Kr.