Ritesh Agarwal, the founder of hotel room aggregator OYO, is firmly focused on the future. "Initially, it was about the difficulty of convincing potential partners and recruits to work with us. Since it was an untested business model, hotel owners were unsure about the value we could bring. But once they saw the impact, which reflected in higher customer repeats and revenues, as well as in operations, revenue management and CRM (customer relationship management) becoming more efficient through the use of OYO apps, they were convinced."
OYO started in 2013 as a full-service operator but a year or so later changed its strategy to focus on room aggregation and standardisation. It also inspired a host of similar start-ups in the same space, almost all of whom - including OYO - are now very actively involved in running the hotels, right from providing technology solutions for a seamless service to re-building and refurbishing the properties to making strategies for increasing occupancy. "We used to take the entire hotel and operate it entirely. It was only in 2014 or early 2015, when we had an aggressive competitive environment, that we thought that aggregating rooms was the only way to have a foot in the door of a large number of these assets," says OYO's Agarwal.
Each of the three companies focuses on the budget traveller, with room tariff in the `1,000-3,000 range. "The so-called budget brands were operating at a higher price point of `3,500 and above, which we felt was not truly budget for the Indian customer," says Gupta. Most international hotel chains, and even the home-grown alternatives, right from AccorHotels Ibis brand to the Tata Group's Ginger chain, charge tariffs starting at `4,000 per night.
Initially, each of the three companies worked with existing infrastructure, instead of building properties from scratch (though that is slowly changing as they are able to guarantee returns that can convince hotel owners). Agarwal of OYO emphasises how economies of scale are allowing it to procure materials and, hence, retrofit buildings cheaply and that too within months. This is done largely via large e-bidding programmes for the company's purchases. For hotel owners, the shorter timeframe is a big benefit when compared with quarters, even years, that it may take for them to meet the standards of international chains that are expanding in India. "OYO can convert assets - wiring, piping, ceiling, flooring - with its 300 civil engineers, interior designers, AI scientists in a period of 15 days on an average. We recently converted a cinema theatre in Goregaon, Mumbai, in roughly one and a half months," says Agarwal.
As a result, the start-ups, which to outside observers may look as providers of IT-driven solutions, are so much more. They bring together hotel management know-how with cutting edge technology and emphasis on design. "Our second hire was actually from the hospitality background," says Aggarwal, adding that from day one, FabHotels has had a multi-disciplinary team. OYO's Agarwal says, "We think about making everything a part of a suite." Giving the example of Garima Nagpal, who was hired last year as head of quality, he says the company is hiring across the board - from IT and design to project management and policy.
The proof of the concept is in the numbers, with all three companies reporting an exponential increase in sales. Aggarwal of FabHotels says occupancy rates rise 1.6-2.5 times, while the price per room goes up by 1.2-1.8 times after they tie up with the hotel. "Our value creation is visible in terms of our earnings at the asset level with revenue growing by 2.5 times," says OYO's Ritesh Agarwal.
Each of these companies is bullish on growth, with OYO's Agarwal laying out a vision to get to 180 cities and 1,80,000 keys by the end of 2018. As Gupta says: "It's a huge, huge market. It's still day one for the company, with a lot of opportunity for expansion."