26 Oct 2016 13:44 IST

For OYO, there’s still plenty more room to grow

The new kid on the block has unlocked supply in the branded hotels segment

When the chairman of a 135-year-old hotel brand like Taj terms a three-year-old company a threat, it speaks volumes about the disruption the young upstart has caused. At the 115th annual general meeting of Indian Hotels Corporation Limited this August, Tata Group’s Cyrus Mistry (who has since stepped down as Tata Sons Chairman) admitted to shareholders that they needed to keep an eye on Ritesh Agarwal’s OYO.

In 2013, when Agarwal, then a 19-year-old lad from Odisha, came up with the OYO Rooms concept of working with small, unknown hotels, traditional hoteliers dismissed him as a pesky outsider and derided his model. Agarwal had no hoteliering background, But he recognised the lack of affordable, branded hotel room supply for the common man.

The disruption

To solve it, he put tech, reach and branding in the hands of nondescript hotels, which could offer rooms in great locations at discounted rates. He brought innovation into a sector that was steeped in traditional thinking and became a poster boy for India’s start-up story, attracting funding easily. VCs and PE Funds, which had never looked at the hotel sector, began investing, infusing the industry with capital to grow.

If OYO opened the doors to new room supply, it also unlocked new consumers. Taking a leaf out of Ola’s on-demand model (which got thousands of new users into the taxi pool), OYO expanded the customer base of branded hotels by making them “available, predictable, affordable”. Suddenly, backpackers, students, people who stayed with relatives, night train travellers who just needed a shower and change but were loathe to pay huge sums for a hotel room, began choosing OYO. A stagnant market that was hovering around 90,000 branded hotel rooms began growing at a fast clip.

In just three years since it launched, OYO boasts nearly 70,000 rooms across 200 cities, making it one of India’s largest hotel chains. Agarwal is unstoppable. “There are 4.5 million unbranded rooms in the country. My goal is to ensure they will get branded and remodelled,” he says.

The challenges

But just like Ola and Uber faced a storm of opposition from taxi and autorickshaw unions, all through last year OYO had to contend with protests from traditional hoteliers. OYO came at a particularly difficult time for them: it was a bad downcycle and, with demand in upscale segments slack, the big boys of the hotel industry were championing their mid-market or budget brands, the only growth avenue. Taj had Ginger, ITC had Fortune, Lemon Tree had Red Fox, and brands like Premier Inn, Keys had all entered the category, most of them with big investments. The economics had all been worked out.

As Patu Keswani, the maverick founder of Lemon Tree, famously pointed out, there are about 400,000 Indians travelling every day (250,000 train travellers and 100,000 air travellers plus those travelling by road). They all need some place to stay. But in 2012-13, the supply was barely 90,000 branded rooms.

OYO attacked this opportunity. But unlike the others, who were looking at converting well-known stand-alone properties, OYO did not bother with frills or management fees, instead going in for standardisation and convenience and choosing the franchise route and offering lower rates. The industry had no choice but to start discounting. As one irate hotelier wailed, “We were being hit by a technology platform consolidating mom-and-pop establishments that are poor on compliance and selling them like a hotel chain.”

Agarwal, 22, handles the criticism maturely. He admits that negative reviews on platforms like TripAdvisor hurt, but says these are being addressed by auditing guest experiences. As for compliance, he points to the regular audits the company does to ensure quality: he claims a team of auditors goes around with a 150-point checklist to review a hotel that has been remodelled as an OYO. But he disowns the ‘aggregator’ label now. “It’s the media that has branded OYO an aggregator; I’d call OYO a branded hotel franchise model,” he says.

Much as Agarwal would like to disown that label and be counted among the big boys, the hotel industry treats OYO differently. In its report released last month, hospitality consultant HVS, which ranks the top 20 hotel brands according to the inventory they own, places the Taj Group first (just under 14,000 rooms) and Carlson Rezidor second (over 8,000 rooms), and categorises OYO and Airbnb and other models on a different list. “It is likely that over 1,00,000 rooms exist in this new lodging dimension,” says HVS.

OYO’s identification with the budget category could also hurt its expansion plans. But it is now trying to change this perception. “OYO is about to begin on a transformative exercise,” says Agarwal. It’s working on OYO Flagship, the internal project name for a premium offering, and has hired the services of a creative agency, Thinkstr.

Key differentiators

Innovation has been a hallmark for OYO. As Agarwal says, “OYO fundamentally started out an innovative organisation committed to delivering a comfortable stay away from home.” OYO is also about convenience, he says, and so it’s done radical things like introducing ‘sunrise’ (6 am) check-ins and a new relationship category under which unmarried couples can book a room.

Says Satbir Singh, founder of Thinkstr, which is helping OYO with its brand strategy: “Disruption and innovation is in OYO's DNA. The brand has been built on accessibility and they have never shied away from being a budget traveller's first choice. The upper segments will soon have a new range available. This also speaks about the clarity they have about positioning the current offering and future ones.”

Going forward, Agarwal says OYO will rely heavily on data sciences to study consumer behaviour and deliver to users the experience they want. OYO records more than 750,000 bookings every month. When the analytics team plotted the geo-locations of where the bookings originated from, it saw that many of the bookings were happening on highways and road routes, implying that people often book on their way to a destination or at a destination. So, OYO will make bookings convenient for last-minute check-ins. Similarly, by looking at data on the cities that generate the most bookings and clusters of feeder cities, it could offer targeted supply.

People have questioned OYO’s discounted model, but Agarwal says, “As we grow the occupancy, guests can get the best price.” With the upcycle ahead, can OYO, which is today valued at nearly half a billion dollars, become India’s next unicorn?

 

 

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