Ritesh Agarwal, founder and CEO of OYO, was in London recently and sat down with tnooz to talk about the past, present and future of India’s biggest hospitality company.
OYO has more than 60,000 exclusively controlled rooms, mainly in the branded economy chain segment where its flagship OYO Rooms brand dominates. The business has raised around $450 million so far, including a $250 million Series D last September, led by Softbank’s Vision fund.
The business is based around the familiar hotel franchising model, with technology-enabled twists. OYO converts unbranded properties in the budget segment to the OYO Rooms brand, providing owners and managers with financing options to fund the conversion and has a team of civil (rather than software) engineers to carry out the conversion.
But the real distinction between OYO and franchising-as-we-know-it is the use of technology across all and every aspect of the business, starting with its distribution platform. Beyond that, it has built a range of proprietary operational apps available to owners and managers which enable hotels to be run from a smartphone. For example, all of the hotels on its books allow mobile check-in. Other apps help streamline design and construction, asset management and staff training.
Other differences between what OYO and the franchise giants do is the speed to market. Agarwal is proud that his team can convert a property to an OYO and have it live in the sales and operational systems in as little as three days.
The scale of OYO is more than just a reflection of the size of India. India is the world’s second-most populous country with 1.3 billion people, the world’s second-largest internet-enabled market with some 460 million users, the world’s sixth-largest global economy. The opportunities for local, regional and global players is vast. Little wonder then that the country’s domestic and outbound travel sector, as well as the B2B and B2C enterprises powering that travel, are increasingly seen as having something to say about the global state of play.
OYO was founded in 2013, growing out of a business Agarwal launched in 2012, Oravel. This was a peer-to-peer accommodation site which also sold some “traditional” hotel/hostel rooms at the budget end of the market. Agarwal said:
“We ended up in the press as the ‘Airbnb of India’ – at the time that meant we had more interest from investors than from customers. As an entreprenuer starting out, looking to build a business which addressed a consumer problem rather than one which just attracted funding – that was not what I wanted.”
The pivot to OYO came in 2013. Since then OYO has not only grown but also matured. According to a UBS Global Research paper released last September, it is one of “the rising competitive risks” for India’s biggest OTA MakeMyTrip.
Keeping it simple
Agarwal believes that OYO has identified and addressed a consumer problem. He said:
“There has always been a disconnect for travellers, particularly in the economy segment, between location, quality and price. All three need to be aligned for our business to work and we have done that, for guests, owners and our investors.”
The UBS paper says it has an annual run-rate of 15 million booked room nights (ex-cancellations), with net take rates – aka commission – between 15% and 20%.
Elsewhere, OYO internal research claims that the number of rooms in the unbranded economy segment is around four million, of which two million are “addressable” by OYO – as in, ripe for conversion to an OYO Rooms. With the price point for these properties between $20 and $25 a night, that’s a market worth $18 billion a year for OYO in India alone.
The branded premium economy sector is also of interest – OYO launched its Millennial-friendly OYO Townhouse brand last year, operating on the same principles and tech infrastructure as OYO Rooms but aiming for the $50 – $60 per night price range.
And there is also OYO Home, which OYO launched in Goa, renting out and managing villas, farmhouses and apartments. It currently has more than 500 properties across various leisure-focused destinations.
OYO has spread outside India with properties in Nepal and Malaysia, but Agarwal explained that these openings were “opportunistic” rather than a sign that it was going global.
“There are opportunities in many markets in southeast Asia and it’s a market we understand, but India is our core focus and it would be wrong for us to lose that focus by looking overseas when there is so much opportunity in India.”
A week or so after September’s $250 million Series D raise, OYO also confirmed a $10 million injection from Nasdaq-listed China Lodging Group (CLG). Its new investor concentrates on the economy and midscale segment and has more than 3,500 hotels providing some 360,000 rooms in operation in 369 cities in China.
The five-year memorandum of understanding signed as part of the deal talks about the synergies between CLG’s experience of a multibrand portfolio and OYO’s ability to tap tech to enable the “transformation of hotel operations.”
Producing the product
Agarwal framed OYO’s development in terms of how, he believes, India consumers operate. He suggested that “India is product-driven” and pointed to the example of low-cost carrier Indigo “which has spent millions of dollars on its product, not on marketing.”
Being product-driven in the case of OYO means providing guests with a standardised experience including wifi, breakfast, air conditioning, in-room TVs etc. But having a great product also means that the brand itself is generating demand.
“Good quality supply changes the market and can create new use cases. We have seen that locals are using our hotels, for example, staying there when visiting friends, for game nights when it’s easier to stay in town.”
A big change in OYO came about in early 2016 when it started to focus attention on “exclusive” access and inventory. In its early years it had its fair to say, a less rigorous approach. Often an OYO Rooms “hotel” would be a couple of converted rooms in an otherwise unbranded hotel . This was one reason why some of India’s biggest OTAs stopped selling the brand at the back-end of 2015 (coupled with the fact that they too saw the potential of the segment and launched similar products of their own).
“We underwent a big pivot in 2016 and really started to concentrate on getting exclusive and full inventory, making sure that we were more in control of the product. We were able to grow this full inventory model quickly because owners saw that we had the distribution scale and operational experience to make their assets work.”
The change in less than two years has been dramatic, as evidenced by 95% of its revenues coming from these 60,000+ exclusive rooms. Exclusive properties – which means that the entire hotel is branded as OYO and only OYO – is the future and the focus. It has set the ambitious target of adding 180,000 exclusive rooms to its line-up by the end of this year.
And, as per UBS, these exclusive properties are currently seeing an occupancy rate of 70% against an average across India of 62%. At the budget end, one and two star unbranded hotels occupancy can vary between 30% and 60%.
The blocking of OYO by the OTAs at the back-end of 2015 was more of “PR headache” than “business critical”. At the time, 10-15% of bookings were made via an OTA; today that figure has dropped to 3%.
The “97% direct” balance includes distribution through some non-OTA third parties such as Travelport – which started selling OYO in June 2016, Thomas Cook India and a selection of SMEs, corporates and TMCs which have signed up to its OYO for Business product.
Mobile currently accounts for more than 70% of bookings, out of which more than 95% comes from the app..
Agarwal referenced some Kalagato data which shows that OYO is growing its market share of hotel bookings without growing its share of app downloads.
“We have repeat booking rates of around 40% so we are increasing our share of hotel bookings by giving users a great experience on property and by making it easy for them to book. We think our one-click booking is the most seamless in India and probably stands up in a global context as well.”
OYO deserves to be seen as a serious player in a global context. It’s emergence and rapid growth effectively opened up a new segment in India, and alerted other entrepreneurs and investors to the potential of the technology-enabled branded budget hotel sector.
“Some see us a hospitality company with the power of an OTA, or as an OTA with proprietary inventory. How the market defines us is not really relevant to our consumers, for whom our ability to find the sweetpost between price, location and quality is all that matters.”
In order to deliver on its potential, OYO needs to do more than just ride the favourable macro tailwinds.
“We have learnt some lessons along the way and believe that our exclusive and full inventory model will drive further growth, and we can monetise that growth by maintaining control over our distribution. This helps keep marketing and customer acquisition costs in balance.”