Chagee - next Starbucks but for tea? China New Consumption #3
Selling caffeine the Chinese way
While investors continue to question the strength of Chinese consumption amid lingering deflationary pressures, it's ironic that some of the best-performing stocks in the past year have been in so-called “new consumption” — discretionary consumer brands that resonate deeply with Gen Z and younger demographics.
I’ve been tracking China’s “new consumption” story for a while now. Last week, I wrote about Pop Mart’s collectible Labubu craze, and before that, Laopu Gold, which brought traditional craftsmanship to investors' attention. One thing is clear: China is no longer just producing affordable staple goods with only utility value. Its homegrown discretionary consumer brands are increasingly poised to create products that culturally resonate with consumers, both domestically and globally.
This is exactly why “new consumption” deserves attention — not as a macro beta play, but as a hunt for alpha. It’s about finding those rare, structurally advantaged opportunities that can deliver outsized returns and long-term growth in China. And that’s what this newsletter series is about.
Today, I want to talk about another brand that’s emerging from this wave: Chagee (霸王茶姬) (NASDAQ: CHA), which just went public this April. If you’ve been to a Chinese city in the past two years, you’ve likely seen its minimalist tea houses popping up everywhere. The company was founded in 2017 in Yunnan province and quickly scaled with a strong franchise model. Its product focus is clear: high-end freshly brewed tea—especially "milk teas" that offer a healthier alternative to sugar-heavy bubble teas or jittery espresso. Its positioning sits somewhere between traditional culture and modern lifestyle branding.
*This post is not sponsored by Chagee; Please subscribe and stay tuned for more explainers on China’s “new consumption” opportunities in upcoming posts.
How the “traditional culture” card works in Chagee’s favor
In recent years, the revival of traditional Chinese culture has become a major trend. “Tradition meets modernity” is arguably the most popular branding strategy in China today—but pulling it off well is easier said than done. Many brands claim ties to ancient recipes, color palettes, or craftsmanship legacies, but often it’s just surface-level marketing.
Chagee is no exception in playing this card—but unlike many, it actually makes it work. As Chinese consumers increasingly seek to reconnect with their cultural roots, Chagee offers a brand experience that feels authentic.
Its name, “Chagee,” pays tribute to the classic Chinese opera Farewell My Concubine. (霸王别姬; In Chinese, these two phrases are phonetically similar.) The brand’s logo is also inspired by the traditional Dan (旦) role in Chinese opera (Dan is the general name for leading female roles in Chinese opera), and its store interiors are filled with elements from opera and traditional Chinese aesthetics: wood textures, seal-script wall designs, and traditional facial makeup patterns in opera.
Chagee's flagship store in Shanghai features a C-shaped decorative installation that pays tribute to Tang Sancai, a type of Chinese pottery characterized by its lead-based, tri-color glazes—typically in shades of green, amber (or brown), and white.
Even its beverage names draw from historical and literary references—like “Bo Ya breaking the Qin strings” (伯牙绝弦), which is a Chinese legend about the profound bond between two friends and the value of true understanding.
This year, while many western brands struggled to design a “Year of the Dragon” special edition that genuinely connects with Chinese consumers (often ending up with dragons that look like lizards in red), Chagee nailed it. Their Year of the Dragon packaging was inspired by the Hongshan Jade Dragon—the oldest jade dragon relic from the Neolithic period, unearthed in Inner Mongolia in 1971 and now housed in China’s National Museum.
How Chagee fits into the modern lifestyle
When the “Guochao” (国潮) trend—loosely translated as "China chic"—first emerged, many brands simply pasted traditional motifs onto modern products. A good example is the revival of Hanfu (traditional Chinese clothing) in recent years. While culturally meaningful, Hanfu often felt too costume-like for everyday wear.
Chagee took a different route. Its branding blends traditional culture with modern aesthetics. The design is clean, minimal, and geometric—clearly borrowing from contemporary and western aesthetics, which resonate more with today’s young consumers.
And, most importantly, the product itself—brewed tea with less sugar—fits into the fast-paced modern lifestyle of young consumers who are seeking caffeine in a healthier way.
In my opinion, Chagee is positioned to become a serious challenger to Starbucks in China.
In my previous newsletter, "Why Starbucks is failing big in China", I’ve written about how Starbucks has struggled—from poor localization to a declining price-for-value in an increasingly competitive market. Luckin Coffee has already captured the daily coffee crowd with more affordable pricing, while high-end boutique stores appeal to younger consumers with unique interiors and artisan service. Starbucks, stuck somewhere in the middle, is becoming increasingly irrelevant to this new generation.
Chagee plays an entirely different game. It sells caffeine too—but in a way that’s tailored to Chinese tastes and habits.
For instance, take me as an example, after a decade of living abroad and being deeply immersed in the daily coffee routine, I’ve recently switched back to tea as my go-to caffeine source. Tea gives me a calmer, more sustained focus—without the jitters that coffee often brings. And I’m not alone. Many of my peers—especially in their late 20s and 30s—are making the same shift.
We all grew up watching our grandparents drink tea every day, but many of us didn’t start appreciating the ritual until we became adults. In China, this moment of rediscovery even has a name among young netizens in China: 血脉觉醒—“ancestral blood awakening.” It’s that emotional moment when something that once felt old-fashioned—something only our grandparents did—suddenly clicks with you in a deeply familiar way.
Chagee's going abroad story
Among Chinese brands that have successfully expanded globally, most have a very diluted national identity. For instance, Pop Mart and Miniso are two such examples—an average consumer likely wouldn’t realize they are Chinese brands, as they lack obvious cultural characteristics associated with China.
But what’s interesting about Chagee is that it’s expanding globally while retaining a distinct Chinese cultural heritage—and I personally believe that might be its edge abroad. Its packaging, store design, and tea culture all carry visible traces of Chinese aesthetics. Yet, it doesn’t come across as old-fashioned. Instead, it feels elevated and modernized—almost like how Japanese matcha culture was introduced to the West years ago.
Chagee has opened 148 overseas stores by 2024, mostly in Southeast Asia, with plans to expand to the US, Japan, and Korea. In the US, Chagee has attracted local customers to visit its tea truck and opened its first flagship store in Los Angeles this April, where lines outside the store have started to resemble its launch days in China.
On platforms like TikTok and Instagram, consumers are actively sharing their impressions and experiences with Chagee. What stands out is that many of them don’t come from a traditional tea-drinking culture—yet they’re praising the taste and making comments like “You had me with the packaging.” It’s a sign that Chagee’s distinct Chinese cultural identity is resonating and giving the brand a real edge.
Compared to Luckin, Chagee’s global play actually makes more sense to me. Coffee is native in most Western markets, so it’s hard to bring in something new. But tea—especially Chinese tea, presented with a twist—is both culturally relevant in Southeast Asia and still niche in the West. There’s novelty. There’s identity. There’s room to grow.
For investors to know
But of course, the tea beverage itself isn't a high-barrier business. There are dozens of competing milk tea brands in China, and their average selling price per cup is higher than many competitors. At the end of the day, taste matters more than the cultural message, especially in the Chinese domestic market.
Paid subscribers get access to our exclusive Discord community, where we share timely trade ideas, equity research, and data points related to understanding and investing in China. It's also a space to connect and network with like-minded readers from around the world.