Chinese tea brand Chagee released its unaudited financial results for the first quarter of 2025, which ended on March 31.

The company reported a 35.4% increase in net revenue, reaching 3.39 billion yuan (around US$471 million) compared to the same period in 2024.

As of March 31, 2025, Chagee operated 6,681 teahouses across Greater China and overseas, reflecting a 63.6% year-on-year expansion.

Gross merchandise value (GMV) for the quarter rose by 38% to 8.23 billion yuan (around US$1.1 billion).

Net income grew by 13.8% to 677.3 million yuan (around US$94 million), but its net income margin declined to 20% from 23.7% in the previous year.

Operating income reached 820.8 million yuan (around US$114 million), with an operating margin of 24.2%.

Revenue from franchised teahouses, which accounted for 92.8% of total revenue, increased by 31.8% to 3.15 billion yuan (around US$437.2 million).

Additionally, revenue from company-owned teahouses more than doubled to 242.8 million yuan (around US$33.7 million), attributed to the opening of 133 new outlets.

Operating expenses rose by 42.8% to 2.57 billion yuan (around US$356.7 million), driven by increased costs related to materials, logistics, sales, and administrative functions.

Chagee ended the quarter with 5.39 billion yuan (around US$748.2 million) in cash, restricted cash, and time deposits, up from 4.87 billion yuan (around US$676 million) at the close of 2024.

.source-ref{font-size:0.85em;color:#666;display:block;margin-top:1em;}a.ask-tia-citation-link:hover{color:#11628d !important;background:#e9f6f5 !important;border-color:#11628d !important;text-decoration:none !important;}@media only screen and (min-width:768px){a.ask-tia-citation-link{font-size:11px !important;}}

🔗 Source: Chagee

🧠 Food for thought

1️⃣ Premium positioning with declining unit economics reflects market saturation challenges

Chagee’s earnings reveal a critical tension in its growth strategy: while the company has achieved impressive expansion with a 63.6% year-over-year increase in teahouse count, its average monthly GMV per teahouse in Greater China has declined significantly from RMB549,432 to RMB431,973 1.

This pattern mirrors challenges faced by other rapidly expanding food and beverage chains like Starbucks during certain growth phases, where aggressive store expansion can lead to cannibalization of existing location sales.

The declining unit economics come despite Chagee’s positioning as a premium brand with high profit margins (20.0% net income margin), indicating that market saturation may be occurring in key Chinese markets even as the broader bubble tea category is projected to grow at 9.16% CAGR through 2032 2.

Chagee’s situation highlights the fundamental challenge of balancing rapid expansion with maintaining strong unit performance, particularly relevant as the company pursues ambitious plans to serve customers in 100 countries 3.

2️⃣ Strategic shift toward brand-building and merchandise diversification

Chagee’s 166% year-over-year increase in sales and marketing expenses signals a deliberate strategic pivot toward brand building rather than focusing solely on store-level profitability 1.

This substantial marketing investment (approximately $137 million) aligns with the company’s merchandise strategy, which contributes 20-30% of revenue growth through 40-50 new merchandise products annually 4.

The approach mirrors strategies from Starbucks, which leveraged merchandise to extend brand presence beyond physical locations and create additional revenue streams.

This multi-faceted revenue model helps explain how Chagee maintains impressive financial fundamentals including a 100.90% return on equity and 37.83% return on assets despite declining store-level economics 1.

3️⃣ Rising operational costs reflect the challenges of maintaining quality during rapid global expansion

Chagee’s financial results show a significant increase in operational expenses across multiple categories, with company-owned teahouse costs rising 170.0% and general and administrative expenses increasing 62.1% year-over-year 1.

These rising costs have compressed operating margins from 28.2% to 24.2%, reflecting the challenges of maintaining quality standards while pursuing aggressive global expansion.

The cost increases are particularly noteworthy in research and development (up $53.6 million) and professional services (up $36.2 million), suggesting significant investment in product innovation and market entry strategies 1.

This pattern aligns with other successful consumer brands that have expanded internationally, where maintaining product consistency and adapting to local preferences requires substantial investment in both people and systems.

……