Chagee's IPO Analysis: Evaluating the Expansion and Challenges of a Leading Chinese Tea Drink Brand | TickerTrends.io

The TickerTrends Social Arbitrage Hedge Fund is currently accepting capital. If you are interested in learning more send us an email admin@tickertrends.io.

BUSINESS INTRO:

CHAGEE is a leading premium tea drinks brand that serves healthy and delicious freshly-made tea drinks. The company was incorporated in 2017, and was inspired by international coffee chains which have made coffee drinking a lifestyle and a place for social interactions. The company believes that tea drinking needs to be transformed too. The company is leveraging the power of technology and its brand value to make tea drinking a modern-day experience that connects people and cultures around the world.

Today, the company stands out as China’s largest, fastest-growing, and most popular premium freshly-made tea drinks brand and has ranked the 1st on China’s social influence index among all freshly-made tea drinks brands since October 2023, according to the Social Touch Search Engine.

The origin and rise of Chargee is deeply rooted in the personal experiences of its founder, Zhang Junjie, whose early life in Yunnan province, the celebrated birthplace of tea, was marked by considerable adversity. Facing the loss of both parents at a young age, Zhang lived seven years as a homeless person. Despite limited formal education in his youth, his unwavering resolve led him to a position at a tea shop chain named "Da Wei Milk Tea" at the age of 17.

This marked a turning point, as Zhang diligently taught himself to read and rapidly advanced within the company, gaining crucial insights into the tea business. After three years, Zhang seized an opportunity to take over a struggling Da Wei Milk Tea franchise, where his innovative localized delivery system, predating major online platforms, became his first successful entrepreneurial endeavor. Driven by a larger vision, Zhang aspired to establish his own tea brand. Following a strategic period working at a robotics company in Shanghai, where he witnessed the burgeoning "new tea" market, Zhang reconnected with industry peers, pooling resources to launch Chagee in 2017 in Kunming, Yunnan.

The name is inspired by the classic Chinese opera "Farewell My Concubine," hinted at the brand's ambition to fuse traditional culture with a contemporary approach. Chagee's initial strategy centered on offering freshly brewed tea blended with milk, a key differentiator from the powdered mixes prevalent in the milk tea market at the time, catering to a growing consumer demand for authentic and higher-quality ingredients. This dedication to quality and a modern interpretation of tea quickly gained traction, leading to rapid expansion within China.

Chagee's growth necessitated a relocation of its headquarters to Chengdu in 2021, a strategic move to leverage the city's dynamic consumer market. Even in its early years, Chagee demonstrated international ambitions, opening its first stores in Malaysia and Singapore in 2019, followed by an entry into Thailand in 2022. The brand's store network experienced remarkable growth, expanding from 1,087 locations by the end of 2022 to an impressive 6,440 by the close of 2024, primarily through a scalable franchise model. Of their extensive teahouse network, 6,271 are franchised and 169 are company-owned. The company directly manages 398 teahouses, including all of their company-owned teahouses and 229 franchised teahouses.

While its initial product line was diverse, Chagee strategically focused on the "raw-leaf fresh milk tea" category, with its jasmine tea latte, "Boya Juexian," achieving phenomenal success, selling over 600 million cups globally.

To further solidify its brand identity, Chagee incorporated traditional Chinese cultural elements, such as imagery from Peking Opera, aiming to resonate with a younger generation seeking to reconnect with their cultural heritage. Building on its strong foundation in China and Southeast Asia, Chagee is now poised for significant international expansion with its anticipated US IPO on the Nasdaq and the planned opening of its first store in Los Angeles in Spring 2025, marking a pivotal step in its journey towards becoming a global tea brand.

MARKET ANALYSIS:

The market for tea-based beverages within China has exhibited a consistent pattern of expansion over recent years. According to iResearch, the total Gross Merchandise Volume (GMV) of China's tea drinks market demonstrated substantial growth, escalating from RMB 474.8 billion in 2019 to RMB 818.9 billion by 2024. Projections suggest this upward trend will persist, with the market anticipated to reach a valuation of RMB 1,102.7 billion by the year 2028. This forecast implies a Compound Annual Growth Rate (CAGR) of 7.7% for the period spanning 2024 to 2028, indicating sustained momentum within the sector.