Business Today

New-Age Hotelier

Standardisation is key to OYO's success in the hotel aggregation business
By Goutam Das | Print Edition: July 31, 2016
Ritesh Agarwal, Founder and CEO, OYO Rooms [Photo: Vivian Mehra]

The rain came down unexpectedly, making the drive more picturesque. The narrow winding roads from the ruins of the haunted city of Bhangarh, in Rajasthan's Alwar district, took you past a fort, small villages and a caravan of camels before reaching the 240-year old Burja Haveli, a heritage hotel. This writer, and his two friends, arrived to a musical welcome that June evening; two dancers draped in traditional lehengas swayed, light-footed, across the lawn to the rhythms of Kajra Re. Traditional food and free-flowing Tennessee whisky only added to the delightful taste of Rajasthani hospitality. Inside the room on the first floor, a red OYO goody bag was neatly placed on the table. It held a soap bar, shower gel, shampoo, body lotion, a red pen and a pad.

Hotel aggregator OYO Rooms standardises India's unbranded hotels and then markets them on its website and app - the toiletry it supplies to every hotel is one small effort at standardisation. OYO also ensures air conditioned rooms, breakfast, TV, spotless linen, clean washrooms, and free Wi-Fi. That is this Indian start-up's value-add. While most aggregators just aggregate rooms and distributes them, OYO audits and, at times, invests in them to ensure a minimum standard - a "predictable experience".

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At the Burja Haveli, the Internet didn't work, but everything else was bang on. Standardisation also implies that hoteliers who sign up with OYO agreed to forgo their own brands. Their inventory is always marketed under 'OYO'. Search for hotels in Alwar on OYO's website and Burja Haveli shows up, not as Burja Haveli, but as 'OYO Rooms Jaipur Highway'.

Most entrepreneurs running budget hotels do not mind. Rooms marketed on OYO help in discovery and higher capacity utilisation. Burja Haveli signed up with OYO about five months ago. But for the aggregators, this hotel of 20 rooms would largely remain unknown. "We get more customers through and Agoda (international companies). Aggregators do help us utilise capacity during the off-season," says Thakur Bhupendra Singh Rathore, the owner of Burja Haveli.

Other hoteliers Business Today spoke to cited better business from OYO. The owner of Regalia Residency in Gurgaon (OYO Rooms Cyber City), Gaurav Chhabra's association with OYO is more than two years old. "Our occupancy rates have gone up after we signed up with OYO," he says, adding: "Initially, the Gurgaon property was running at 30-35 per cent utilisation. Now, we run at 80 per cent."

OYO charges 15-20 per cent commission for every room sold on its platform, but the start-up's exponential growth over the past two years is primarily based on the higher traffic it has been able to generate for its business associates. According to OYO, over 70,000 rooms in 6,000 hotels across 180 cities are available on the platform. OYO Rooms has a $200-million revenue run rate. In May 2016, the firm announced that it has "hit unit profitability at an aggregate level across cities". In other words, the company says it makes a profit on every transaction.

The opportunity, in fact, is eye-popping. According to the company, there are 1.8 million rooms in the unbranded hotels segment in India - a larger base than the branded hotel segment accounting for about 112,000 rooms. This opportunity has attracted leading investors to OYO, including SoftBank Group, Greenoaks Capital, Sequoia Capital and Lightspeed India, who have pumped in $225 million in the company.

So what is the start-up's secret sauce? And how did it manage to add supply so fast? "It is so, because we fixed everything in the first year (2013)," says Agarwal. Although the company was incorporated in 2012, the brand was called Oravel Stays, which was a platform for listing budget accommodations. In 2013, Agarwal pivoted, from being just a discovery marketplace to a managed marketplace. He created many playbooks - supply, demand, operations and audit - and followed them to the tee to strengthen its processes. "The supply playbook would have the details to the level of saying: what are the 20 things that make an ideal OYO? Without that, I wouldnt even sign the hotel," he says. "Once we sign a hotel, we standardise it in seven days. To do this, we have a large offline operations network to audit the hotel and standardise it," he adds. Among others, the checklist for hotel audits includes the quality of linen, five-inch mattresses, stainless steel dustbins with a black cover, clean and operational toilets, and bed side sockets to charge mobile phones. Its premium hotels have a coffee maker as well.

The playbooks, combined with great engineering and leadership, did the trick. Also, the start-up wanted to focus on one city at a time. "In 2013 and 2014, we just operated in Gurgaon. In 2014, we had 40 hotels and, now, there are over 380," says Agarwal. Once Gurgaon was built, replicating the same model multiple times in multiple cities was easy.

Of course, discounting, or "incentivising" the customer played a role, as did the minimum guarantees for hotel owners in newer markets. OYO typically priced its inventory 30 per cent lower than competition. "In newer markets, where we were trying to enable a habit of the customer, we incentivise either the customer or the owner. In markets like Shimla, the problem was that the merchants would not give you a room on weekends. So, for the first two months, I incentivise them," says Agarwal. Minimum guarantees - an initial sum paid to the hotelier to ensure inventory - is currently less than 2 per cent of OYO's overall inventory, the company claims. Minimum guarantees were the predominant model till last year. There was more domestic competition and hoteliers would play one against the other to strike a better bargain. Some of OYO's competition is, however, dead. Zo Rooms, for instance, has shut shop. OYO also has a far larger war chest than any of its existing rivals, including Wudstay, though going ahead, it may face a tougher fight from the well-funded Ibibo group's GoStays.

OYO, therefore, seems keen to boost the quality of its inventory, and not just the quantity. Scroll through OYO reviews on TripAdvisor, and you will find everything from "good and nice" to "did not provide what I booked". In January and February of this year, the company slowed down to focus on customer experience, weeding out 51 poor hotels from its platform. Its representatives now respond faster.

Back to the quaint haveli of Burja, where this writer had booked two rooms. On arrival, there was a surprise - OYO, for a reason best known to them, had cancelled one of the rooms. The customer service representative on the phone apologised, re-booked within minutes, and offered a discount. That's exactly how OYO looks to change customer experience for the better.

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