CHAGEE: A Deep Dive into the Rapidly Growing Premium Tea Brand
(Potential Investment Opportunity?)
In today's fiercely competitive ready-to-drink tea market, the name CHAGEE stands out as a rapidly expanding premium tea latte brand. From a small tea shop in Yunnan, it has grown into a large network with plans for global expansion. Let's take a closer look at its business model, past growth, and future opportunities that might make CHAGEE an interesting prospect for investors.
CHAGEE positions itself as a premium tea beverage brand offering fresh-brewed teas that are healthy and delicious. The inspiration behind the brand's creation in 2017 came from the global success of coffee shops like Starbucks, which transformed coffee drinking into a lifestyle and social concept since the 1970s. CHAGEE believes that tea drinking can achieve a similar level of acceptance.
"Managed Franchise Model": The Core of Growth
The key to CHAGEE's business model is its operation through an extensive and efficiently managed franchise network. The majority of the company's revenue comes from franchise stores, accounting for 83.5%, 94.7%, and 93.8% of revenue in 2022, 2023, and 2024, respectively.
Revenue from franchise stores is primarily divided into two main parts:
Product Sales: The company sells raw materials (e.g., tea leaves, milk), packaging materials, and tea shop equipment (e.g., automatic tea brewers) to franchise stores.
Franchise Fees and Other Services: This includes monthly royalties (calculated as a percentage of revenue or profit), initial franchise fees, and annual brand license fees. Other services like staff training and IT system support are also included.
What differentiates CHAGEE's franchise model is the implementation of a "Managed franchise model". This emphasizes strict central control and oversight to ensure product quality, supply chain management, and customer service adhere to consistent standards across the entire network. The company has teams in 32 provinces across China to provide comprehensive assistance and support to franchise partners, covering everything from site selection and store renovation to supply chain management and online delivery operations.
Furthermore, technology plays a crucial role in CHAGEE's operations. The company invests in automating front-of-store operations using automatic brewers and equipment to guarantee quality and consistency. The supply chain management is also digitized end-to-end, allowing for real-time data tracking and efficient inventory management (with an inventory turnover rate of approximately 5.3 days in 2024, reported as the lowest among fresh-brewed tea brands with over 1,000 stores in China).
In terms of products, CHAGEE focuses on core menu items that appeal globally, particularly their Signature Tea Latte made from natural tea leaves and fresh milk. Tea latte products accounted for approximately 91% of GMV in China in 2024. Having a simple core menu simplifies supply chain management and facilitates rapid business expansion.
Past Growth: Explosive Expansion
CHAGEE began operations in Yunnan, China, in November 2017. Since then, its tea shop network has expanded rapidly both within China and internationally.
Store Count: By the end of 2023, CHAGEE had a total of 3,511 stores. In 2024, this number surged to 6,440 stores, an increase of 83.4% (That's intense!). This covers 32 out of China's 34 provinces, making it the largest premium fresh-brewed tea brand in China by store count. Compared to Luckin Coffee's 24,032 stores in China, there still appears to be significant room for growth within the country.
GMV and Revenue: Total GMV (Gross Merchandise Value) in China and internationally increased by 734% from RMB 1,293 million in 2022 to RMB 10,792 million in 2023, and further increased by 173% to RMB 29,457 million in 2024. It's likely that no other tea brand has achieved this level of growth over the past three years.
But...
Such rapid growth also comes with potential concerns. The Same Store GMV growth % in Q4 2024 turned negative, dropping by 18%, after showing continuous growth previously. The company attributed this to "Normalization," which likely means the opening of many new stores is starting to cannibalize sales from existing locations. This is a number to watch very closely, as consistent growth in same-store sales can indicate increasing popularity. If this popularity wanes or new, more interesting brands emerge, it could impact the growth of existing stores. This figure requires careful monitoring for CHAGEE.
Significant Future Opportunities: Expanding Globally
CHAGEE has strategic plans to sustain and promote future growth:
Store Expansion: Currently, there are only 156 stores outside of China. The company aims for continuous expansion both domestically and internationally. With the franchise model, rapid expansion is expected while maintaining quality. The plan for 2025 is to add another 1,000 to 1,500 stores globally, focusing on strengthening existing markets like Malaysia, Singapore, and Thailand, while exploring opportunities in new markets such as the United States (This is crucial! If they can succeed there, the runway is long).
Investment in Technology: CHAGEE will continue to invest in technology to support development and operations, including improving store efficiency, enhancing customer experience, and enabling better strategic decision-making and management. Technology helps them better understand consumer behavior and preferences through their membership program and Mini Program.
Brand Building and Marketing: Growth plans also include investment in brand building and marketing to increase awareness and retain the customer base. CHAGEE utilizes popular social media platforms like RED (Xiaohongshu), Douyin, TikTok, and Weibo to engage with customers and boost brand influence.
New Product Development: While focusing on core menu items, the company will continue to develop and innovate new products (launched 15 new products in 2024 and continuously improves existing beverage formulas).
Building Overseas Supply Chains: Plans are in place to establish international supply chain networks to support global expansion.
The Leader at the Helm
Mr. Junjie Zhang is the founder, Chairman, and CEO of CHAGEE, with over 13 years of experience in the F&B industry. Importantly, he is only 32 years old and, despite not coming from elite institutions, possesses significant passion for business. He currently holds 53% of the shares but controls 89% of the voting rights due to the company's dual-class share structure. Simply put, CHAGEE is led by a passionate owner with substantial control.
Simple Valuation: P/E Ratio
CHAGEE: ~19x
Luckin Coffee: ~27x
Starbucks: ~27x
For a company growing at over 100% per year, CHAGEE's P/E of 19x doesn't seem expensive if this growth trajectory can continue.
Risks
Despite many positive factors, investing in CHAGEE also comes with risks to consider, such as intense competition in the fresh-brewed tea market, the ability to manage rapid growth effectively, the risk of changing laws and regulations in China, and the risks associated with listing in the U.S. (although personally, I don't think they would be delisted and believe a U.S. listing serves as excellent brand awareness for potential market entry).
The Key Metric to Watch is the Same Store GMV Growth % which dropped by 18% in Q4. Will this trend continue into the year 2025?
Conclusion
To be honest, before looking into this seriously, I thought it was just another fast-growing milk tea shop. But the more I read, the more impressed I became by the story – the growth in stores, sales volume, and the fascinating founder. CHAGEE has demonstrated impressive past growth, particularly in store expansion and GMV volume, which have increased exponentially. The "Managed franchise model," combined with the use of technology and an efficient supply chain, forms a crucial foundation supporting CHAGEE's expansion. Their ongoing plans for continued expansion in China and internationally are truly exciting to watch. However, investors should conduct further research and carefully consider the various risks involved!
!!NOT FINANCIAL ADVICE!!
