Chagee's Global Ambition: Assessing Market Capture and Scalability in the Premium Tea Boom

Chagee's expansion is a masterclass in asset-light scaling. As of September 2025, its teahouse network had ballooned to 7,338 locations, a 25.9% year-over-year increase. The overwhelming majority of this growth is franchised, net revenues from franchised teahouses representing 87.6% of total net revenues last quarter. This model is the engine for its rapid market capture, allowing it to deploy capital efficiently and penetrate both Greater China and overseas markets without the heavy burden of owning every store.

Yet this scale comes at a clear financial cost. The company's gross margin for the third quarter of 2025 was 9.5%, a figure that underscores the intense pressure on core profitability. This is compounded by a surge in operating expenses, as G&A expenses rose 59.7% year-over-year in the same period. This spike likely reflects the investments needed to support a global rollout, including strategic hires and infrastructure for international markets. The result is a compression of the operating margin, which fell to 14.2% from 22.4% a year ago.

The company's financial discipline is evident in its balance sheet. As of June 30, 2025, Chagee held a substantial cash and equivalents position of RMB 8,886.8 million, more than double what it had at the end of 2024. This war chest provides a crucial runway for its growth ambitions, funding the expansion while profitability is under pressure.

The central tension is now clear. Chagee's asset-light model is enabling explosive, high-growth market penetration in the premium tea boom. But the financial sustainability of this model hinges on efficiently deploying that large cash reserve to turn scale into lasting profitability. The path forward requires that the company's aggressive expansion eventually translate into higher margins, not just larger top-line numbers.

Market Penetration and Total Addressable Market

Chagee's strategy is a direct assault on the global premium tea market, leveraging its asset-light model to achieve staggering geographic reach. As of September 2025, its teahouse network stood at 7,338 locations, with operations spanning 8 countries across 2 continents. This footprint is the foundation for its aggressive market capture, particularly in overseas markets where it is seeing explosive growth. Total GMV in those overseas markets surged 75.3% year-over-year last quarter, a rate that far outpaces its Greater China performance and signals strong product-market fit in new regions.

The company is also building a formidable supply chain and product pipeline to support this expansion. It sources approximately 10,000 tons of tea annually, a scale that provides procurement leverage and ensures consistent quality for its global rollout. This operational backbone is paired with relentless innovation, evidenced by the launch of 20+ new products and the completion of over ten process-innovation initiatives with tea partners. This dual focus on scale and product refresh is critical for maintaining relevance and driving repeat purchases as the network grows.

Perhaps the most powerful lever for long-term scalability is its digital ecosystem. Chagee's mobile mini-program has amassed a staggering 222 million registered members, a base that grew 36.7% year-over-year. This membership count is not just a vanity metric; it represents a direct, low-cost channel to customers, enabling personalized marketing, loyalty programs, and seamless digital ordering. The platform's engagement is high, with online engagement up ~250% in the Asia-Pacific overseas market last year. This digital flywheel reduces customer acquisition costs and provides invaluable data to refine offerings and target new markets.

The bottom line is that Chagee is aggressively capturing share in a large and growing market. Its overseas GMV growth rate of 75.3% demonstrates the scalability of its model beyond its home market. The combination of a massive, growing membership base, a vertically integrated supply chain, and a constant stream of new products creates a powerful moat. While the total addressable market for premium tea drinks is vast, Chagee's current trajectory suggests it is well-positioned to become a dominant player in the premium segment, both in Greater China and across its eight international markets.

Scalability and Competitive Moats

Chagee's growth model is built on a clear, defensible differentiation. The brand's core offering-no-cheese, raw-leaf milk tea-is a deliberate strategic pivot away from the sugar-heavy, topping-laden competition. This focus targets the rising health-conscious segment, aligning with the broader market shift toward premium, quality-driven beverages. This isn't just a menu item; it's a brand promise that creates a tangible moat, allowing Chagee to command higher prices and build loyalty in a segment where consumers are willing to pay for perceived purity and craftsmanship.

The model's scalability is staggering. The company is opening stores at an average pace of one every 1.7 days, a velocity that is hard to match. This speed is powered by its asset-light franchise model, which enables rapid geographic capture. Yet, this very speed introduces a critical operational risk: maintaining brand consistency across thousands of franchised locations. With over 7,000 teahouses, the challenge of ensuring uniform quality, service, and the signature tea experience becomes exponentially harder. Any erosion in this consistency could quickly undermine the premium positioning that justifies its pricing and growth.

Store-level economics provide a crucial check on this expansion. In Greater China, the key metric is average monthly GMV per teahouse of RMB 378,506 in Q3 2025. This figure represents the revenue engine for each unit. For the model to be truly scalable and profitable, this GMV must support the costs of franchise fees, supply, and brand marketing while leaving room for the franchisee's return. The recent compression of the company's operating margin to 14.2% suggests that the costs of supporting this massive network-especially the 59.7% surge in G&A expenses-are significant and may be pressuring this unit economics.

The bottom line is a trade-off between growth speed and operational control. Chagee's moats-its premium product differentiation, massive digital membership base, and efficient supply chain-are strong. But their durability depends on the company's ability to scale without sacrificing the quality that defines them. The asset-light model accelerates market capture, but it also outsources a critical part of the execution risk. The path to sustainable dominance requires that Chagee's systems, training, and quality oversight evolve at the same blistering pace as its store count.

Catalysts, Risks, and Forward Look

The path ahead for Chagee is defined by a single, critical test: can it translate its explosive scale into sustainable, high-margin growth? The primary catalyst is the execution of its expansion into the United States and continued penetration in Southeast Asia. The company has explicitly stated its intent to bring its modern tea culture to the U.S., a massive new market. Success here would validate its global brand appeal and open a path to a vastly larger total addressable market. Simultaneously, the 75.3% year-over-year surge in overseas GMV last quarter shows the model works in new regions. The next phase is to convert this early momentum into a stable, profitable presence across these new geographies.

The major risk is the operational strain of scaling a franchised network to tens of thousands of stores. As the company opens a new teahouse every 1.7 days, the challenge of maintaining brand consistency, quality, and the premium positioning becomes immense. Any dilution of the signature no-cheese, raw-leaf milk tea experience could quickly erode customer loyalty and justify the premium pricing that funds the expansion. This risk is already visible in the financials, where a 59.7% year-over-year jump in G&A expenses is pressuring the operating margin to 14.2%. If these costs continue to outpace revenue growth, the asset-light model's efficiency advantage will be lost.

For investors, the forward look hinges on a few specific metrics. First, watch for stabilization or improvement in the gross margin, which sits at a challenging 9.5%. This will signal whether supply chain leverage and pricing power are finally catching up to the costs of rapid expansion. Second, monitor the trajectory of G&A expenses. A deceleration in that 59.7% growth rate would be a strong signal that the company is gaining operational control over its support systems. Finally, the health of the digital flywheel is key. The 222 million registered members and high engagement in overseas markets must continue to drive repeat visits and lower customer acquisition costs.

The bottom line is that Chagee is at a pivotal inflection point. Its growth thesis is built on capturing a booming premium tea market through relentless, asset-light expansion. The catalysts are clear and promising. But the risks are equally tangible, centered on the company's ability to scale without sacrificing the quality that defines it. The coming quarters will show whether Chagee can master this balance, turning its global footprint into durable, high-quality growth.