New age, tech-enabled budget hotel room aggregator brands OYO, ZO, Treebo and ZiP have embarked on a ‘premiumisation strategy,’ offering rooms priced up to ₹4,000.
This strategy of offering alternative stay options such as premium and super premium rooms is an attempt by these new-age players to attract larger wallet share from their existing customers and hit profitability.
OYO Rooms, which has the largest inventory of rooms with 70,000 rooms in 150 cities, introduced its premium category of rooms in early March 2015 without much fanfare, at prices starting upwards of ₹1,500 up to ₹3,000.
Six months ago, OYO also started piloting OYO Elite rooms priced between ₹3,000 and ₹4,000 in a few top cities such as Delhi, Bengaluru, Hyderabad and Jaipur, with plans to introduce Elite pan-India after evaluating customer adoption.
Twenty per cent of ZO Rooms’ inventory of 7,000 rooms in 50 cities are premium rooms priced at ₹2,500-₹3,500, introduced last June.
ZiP Rooms with 3,000 rooms in 50 cities, which kicked off last July with budget rooms, has now shifted its focus to the premium market, garnering 80 per cent of its business from its premium rooms priced at ₹3,000.
Amenities offered Treebo, which has 1,900 budget rooms in 65 hotels across 12 cities, priced upwards of ₹1,000 is gearing up to launch premium rooms in Bengaluru in June, followed by other cities.
These new-age, tech-enabled hospitality brands partner with small hotel owners transforming their budget rooms into standardised, predictable experiences with assured services and amenities, such as air-conditioning, clean linen and towels, Wi-fi, complimentary breakfast, bottled water and so on.
“We are making five per cent gross margin on every room that we sell at present. We will break even at 12 per cent and become EBIT positive when we hit 15-20 per cent gross margins. This will be possible when we roll out our premium rooms as they will give us higher operating margins and lead us to profitability,” said Sidharth Gupta, Founder, Treebo.
Asked whether the cost of premium amenities will eat into margins, he said: “Many of the costs are fixed for budget and premium rooms such as bottled water, free Wi-fi, TV with DTH, electric kettle to make tea/coffee and so on.”
Abhinav Sinha, COO, OYO Rooms, pointed out that the whole idea behind going premium was to capture the entire wallet share of their customers by giving them choices for different needs, instead of losing them to other popular brands.
“Our customers are very value conscious and know exactly what extras they will get in a premium room. While they prefer to book budget rooms when they travel alone, they opt for premium rooms when they travel with family/friends or when their room bill is paid by their company,” he said. While the premium room build out now contributes 20-25 per cent of these brands’ total room inventory, all of them say their primary focus will continue to be in the budget stay space to match the needs of the 350-million budget travellers in the country.
Premium rooms are typically bigger, with larger bathrooms, where customers get a buffet breakfast, instead of a one-choice breakfast and F&B outlets to dine in too.
However, Keshav Baljee, MD, ZiP Rooms (Spree Hospitality), says, ZiP is a full-service technology-focused, hotel brand that offers F&B outlets, spas, transportation and will continue to remain focussed on the premium segment where the bulk of its business currently comes from (80 per cent).
Will these brands succeed in taking on competition from popular regional and global hotel brands such as Ginger, Ibis, Fortune, Formule1 that are in the budget segment?
“No,” says Achin Khanna, Managing Director, Consulting & Valuation – South Asia, HVS.
“There are 1,20,000 branded hotel rooms in the country including both global and regional brands; and this number does not include the new-age tech-enabled branded hotels like OYO, ZO and others.
“Of the one-million hotel rooms that are available in the country, 88 per cent are unbranded and at much lower price points. These new-age hotels are targeted at this large unbranded segment and will largely grow in that space.”