Tea chain Chagee sticking to high prices despite sales plunge
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Chagee has rolled out a line of extracted brewed teas and cha lattes at prices double or even triple what other chains charge for their discounted drinks.
PHOTO: REUTERS
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BEIJING – Tea maker Chagee Holdings is holding firm to a strategy of premium products at high prices, despite a plunge in sales and profit from consumers flocking to other chains offering beverages for a third of the price.
The freshly-brewed tea chain has largely remained on the sidelines as domestic peers such as the Luckin Coffee chain and bubble tea maker Mixue Group partnered with China’s tech giants, doling out subsidies to provide ultra cheap drinks through online orders in 2025.
“We haven’t been fully engaged in the price wars,” Chagee co-founder Shang Xiangmin said in an interview earlier this week at his Shanghai headquarters. “Price wars may be a way to compete but we want to stick to our long-term strategy to build a premium brand.”
The strategy is now being severely tested as rivals’ prices undercut the tea chain’s business.
Chagee’s second-quarter sales growth slowed to 10 per cent from 35 per cent in the previous period, while adjusted operating income dropped 10 per cent compared with double-digit gains in the first quarter.
Same-store sales in the Greater China region plunged 23 per cent.
The sluggish results have since wiped out nearly a quarter of its market valuation. Analysts at Citigroup have cut their full-year Chagee forecast, warning of continued pressure for the remainder of the year.
Mr Shang said he is confident Chagee’s premium drinks will eventually win back consumers temporarily won over by cheaper prices. Beijing’s intervention to curb the bare-knuckles competition will lessen rivals’ price advantages, he noted.
Chagee has long positioned itself as the Chinese tea equivalent of Starbucks.
“Starbucks has brought coffee to the world through decades of development,” Mr Shang said. “We’ve always wanted to go down the same path to take tea further.”
Chagee has rolled out a line of extracted brewed teas and cha lattes at prices double or even triple what consumers pay for discounted drinks at other chains.
Its Hong Kong flagship store is testing a drink line made of the nation’s premium tea leaves that are brewed and served by in-store specialists.
They are offered at prices similar to servings of single-origin coffee at Starbucks Reserve shops in the city, which range from HK$40 (S$6.70) to HK$50.
China’s continuing consumption slump, though, is even putting pressure on the Seattle-based Starbucks, which is looking for a strategic partner to buy a stake in its China operation.
Chagee has more than 200 international stores out of its network of 7,000. Sales in overseas markets surged 70 per cent in the second quarter. South-east Asia remains a focus for expansion, Mr Shang said.
The company has at least 11 outlets in Singapore.
Chagee is also modelling Starbucks’ spacious coffee shops – so-called third places between home and work – that create a sense of community, he added. Chagee strives to provide roomy spaces in which customers can sip their tea as opposed to the small grab-and-go outlets of competitors.
“We want tea aficionados to sit in our shops and feel the culture,” he added. BLOOMBERG
