In 2025, China’s internet giants kicked off an unusually aggressive subsidy war over food delivery, with milk tea and coffee among the categories at its center.
JD.com entered food delivery in April 2025. Soon after, high-frequency purchases such as tea drinks and coffee became a way for internet platforms to compete for users and orders. Subsidies pushed the price of some drinks down to just a few RMB, and in some cases effectively to zero, drawing widespread attention on Chinese social media.
The platforms generated the traffic, but tea chains also bore part of the cost. That intensified competition in a new-style tea market where brands were already fighting for growth.
Since August, listed tea chains have been releasing their first-half results.
One leading brand reported negative same-store performance for two consecutive quarters, attributing the decline partly to a high comparison base created by food delivery platform subsidies a year earlier.
Around the same time, Chagee, which had largely stayed out of the subsidy battle, released its latest results.
In the second quarter of 2026, Chagee recorded gross merchandise value (GMV) of RMB 7.66 billion (USD 1.1 billion) and net revenue of RMB 3.415 billion (USD 506.9 million), up 2.5% year-on-year. Operating profit reached RMB 525 million (USD 77.9 million), while adjusted net income was RMB 489 million (USD 72.6 million). It was the company’s 14th consecutive profitable quarter.
The revenue growth itself was modest. More important was what the results suggested about the tradeoffs Chagee made during the delivery war.
When prices, orders, and traffic can be lifted temporarily through subsidies, the harder question is whether a tea chain can preserve its pricing, franchisee economics, and operating efficiency once those incentives fade.
That is the test Chagee has been trying to pass.
The reality check after the subsidy war
In hindsight, the food delivery battle acted as a stress test for China’s restaurant and beverage industry.
As consumers became more cautious about spending, price sensitivity increased. Platform subsidies amplified that behavior by making heavily discounted drinks widely available.
For tea brands, that could generate more orders. It did not necessarily produce better economics.
Once subsidies recede, the more important question is how much revenue, profit, and cash flow those orders ultimately leave behind.
First-half results across listed tea companies show different degrees of pressure. Some maintained relatively stable operating margins, while others reported weaker cash flow or adjusted expansion plans.
Chagee stood out less for rapid growth than for the relative stability of its operating performance.
During the food delivery price war, Chagee limited its participation in aggressive discounting and slowed the pace of expansion. Management described the approach as a focus on higher-quality growth, arguing that price competition can stimulate short-term consumption but is difficult to sustain as a long-term operating strategy.
Its latest results provide some support for that approach.
During the reporting period, Chagee had 7,639 stores globally, up 8.5% year-on-year. Overall same-store GMV growth improved by 6.9 percentage points from the same period a year earlier.
Total operating expenses fell 10.4% year-on-year. Selling and marketing expenses declined 21.7%, general and administrative expenses fell 64.6%, and other expenses dropped 33.3%. Gross margin remained unchanged at 54%.
The store network expanded while expenses declined and same-store performance improved.
Chagee’s cash position also remained substantial.
As of June 30, 2026, the company held RMB 6.795 billion (USD 1 billion) in cash, cash equivalents, and related holdings. Including RMB 1.3 billion (USD 193 million) in short-term investments added during the first half, its cash and cash-like assets exceeded RMB 8 billion (USD 1.2 billion).
The company has also returned capital to shareholders.
On September 30, 2025, Chagee’s board approved a special cash dividend totaling about USD 177 million, equivalent to roughly RMB 1.18 billion (USD 175.2 million). The dividend was fully paid during 2025.
Under a separate share repurchase program, Chagee may buy back up to USD 150 million of American depositary shares during the 12 months beginning June 1, 2026. That is equivalent to about RMB 1 billion (USD 148.4 million). So far, it has repurchased roughly 2.57 million ADSs for nearly RMB 200 million (USD 29.7 million).
Some brokerages have also maintained positive views on the company. Deutsche Bank reiterated its “buy” rating, while other institutions raised their target prices.
Those calls reflect analyst assessments rather than operating performance, but they indicate that some investors are focusing on Chagee’s profitability and cash generation even as its top-line growth moderates.
Building a product system around tea
If the food delivery war tested Chagee’s operating discipline, its next challenge is on the consumer side.
Much of the competition among tea chains in recent years has revolved around breakout products. One flavor or ingredient becomes popular, and competitors quickly introduce similar offerings. Grapes, mango pomelo sago, wampee, and kale have all moved through the industry in waves.
But individual products are relatively easy to imitate.
The pace of launches also remains high. In the first half of 2026, one leading brand introduced 142 new products, or more than 20 a month on average.
Launching products is one challenge. Getting consumers to remember them is another.
Chagee has one unusually durable product in Boya Juexian. According to Frost & Sullivan data, more than 1.25 billion cups were sold between January 1, 2022, and June 30, 2025.
Rather than relying on finding another product of comparable scale, Chagee is trying to build a broader innovation system centered on tea.
During the reporting period, it launched 17 new tea drinks in Greater China, a quarterly record for the company. They spanned fresh milk tea, tea lattes, specialty tea drinks, and low-caffeine products.
Its category expansion has also remained tied to tea, extending into specialty drinks, lemon milk, and its “Geelato” line.
The Geelato name is a play on gelato. According to Chagee, its R&D team adjusted the ratio of milk to tea base, steeping time, and temperature to preserve the aroma and aftertaste of whole-leaf tea.
The idea is not simply to add ice cream to the menu, but to test other formats in which tea can be consumed.
A similar approach is visible in its regional products.
Around the May Day holiday this year, Chagee introduced several region-specific offerings using ingredients including Zhejiang Longjing tea, Anhui Lu’an Guapian tea, Henan peony, Shaanxi Fuzhuan tea, Jiangxi Lushan Yunwu tea, and Jiangsu Biluochun tea.
These products give Chagee a way to expand its menu while keeping tea varieties and regional ingredients at the center of the product story.
The company is also trying to broaden when and where consumers drink tea.
Since introducing low-caffeine products in March 2025, Chagee has promoted tea for morning, midday, and evening occasions. This year, it has extended that approach to birthday parties, small meetings, wedding banquets, and team building events.
Its partnership with Xiamen Airlines brought its drinks onto flights, while the Chagee Imagine pop-up in Aranya tested a more community-oriented retail format.
Taken together, these initiatives suggest Chagee is trying to build a wider set of consumption occasions around tea rather than compete primarily through the sheer number of products it launches.
Some early results point to incremental demand.
According to market data cited by 36Kr, the return of Xingshi Chunshan, a Longjing green tea-based beverage, helped lift Chagee’s overall GMV by nearly 25% sequentially during the Qingming Festival period.
By the end of the second quarter, Geelato products had been introduced in more than 190 stores. Chagee said offline GMV at those locations increased by more than 20% on average, while the products also attracted new users and reactivated dormant members.
For a company that already has a flagship product in Boya Juexian, the challenge is increasingly less about finding another single hit than about giving customers more reasons to return.
Focusing on brand equity
Chagee’s other card is harder to measure quarter by quarter: brand equity.
The food delivery subsidy war may have altered consumers’ expectations around the price of tea drinks. Repeated discounts can encourage customers to compare brands primarily on price, making it more difficult for companies to sustain higher price points without a clear reason for consumers to pay them.
Chagee’s limited participation in the subsidy battle was therefore not only an operating decision. It was also consistent with the way the company positions its brand.
Its drinks sit broadly in the middle of the market by price. The company seeks to differentiate through tea quality, product consistency, store design, and brand experience rather than competing at the lowest end of the price range.
The challenge is whether consumers continue to perceive enough value to pay those prices.
Membership data provides one measure.
By the end of the second quarter, Chagee had about 257 million members. The repeat purchase rate among active members remained above 43%, while members who had made at least two purchases accounted for more than 78% of orders.
Those figures suggest that repeat customers represent a substantial part of Chagee’s business rather than growth depending entirely on promotional purchases.
Chagee has also continued investing in cultural and entertainment collaborations.
In early July, it partnered with Chinese picture book artist Cai Gao on three sparkling tea products. Later that month, it collaborated with Honor of Kings on a specialty drink based on Tieguanyin tea.
The two partnerships target different audiences, but both fit Chagee’s attempt to keep tea culture at the center of its identity while connecting the brand with broader popular culture.
Store design, packaging, and concept spaces form another part of that strategy. Such spending does not necessarily translate directly into near-term GMV, but it can matter more as competition shifts from store expansion toward retaining customers and differentiating brands.
That has become particularly important overseas.
In May, Chagee opened three stores in South Korea. The openings drew lines, while the company said its app had been downloaded more than 46,000 times in the market before the stores formally opened.
That suggests some consumer awareness had already been established before Chagee developed a sizable physical presence.
The overseas business is also becoming more material.
During the reporting period, overseas GMV reached RMB 504 million (USD 74.8 million), up 114.3% year-on-year. Overseas GMV has increased sequentially for four consecutive quarters.
What determines long-term growth?
“The more complex the environment becomes, the more important it is to return to the fundamentals: make good products, serve users well, and keep improving every single store. We are confident that we can achieve high-quality, sustainable growth in any market environment.”
Chagee founder Zhang Junjie made the remarks during the company’s quarterly earnings call.
As the most intense phase of the food delivery subsidy battle recedes, the distinction between order growth and profitable growth is becoming more important for China’s tea chains.
Chagee’s approach offers one test case. It largely resisted competing through deep discounts, continued investing in products and brand building, and preserved profitability while expanding its store network.
That strategy comes with its own challenge. When a company chooses not to compete primarily on price, it has to keep giving consumers reasons to pay.
For Chagee, that means the performance of individual stores, the durability of products beyond Boya Juexian, and the strength of its brand at home and overseas will matter more than temporary spikes in orders.
KrASIA features translated and adapted content that was originally published by 36Kr. This article was written by Yang Shuo for 36Kr.
Note: RMB figures are converted to USD at rates of RMB 6.74 = USD 1 based on estimates as of September 3, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.