80% of Oyo's revenue now comes from exclusive properties: Ritesh Agarwal
The company claims to be the cheapest and says Rs 499 per room night will be the sweet spot for new markets.
India’s largest budget accommodation provider Oyo is going back to its roots in a 2.0 strategy that could also see rooms being offered at the price of a movie ticket in India.
Started in 2013, by 23-year old Ritesh Agarwal, Oyo is targeting its franchise business to cross 90 percent of revenues by the December this year.
The company earlier used to aggregate select rooms across hotels now claims to be getting over 80 percent of its revenue from exclusive properties that have either been leased by Oyo or are run on the revenue share arrangements.
"About 80 percent is now franchised and self-operated (properties). The rest 20 percent is coming from properties where we have a partnership for a few rooms and we do not control the entire technology and the inventory piece," said Ritesh Agarwal, founder and chief executive of Oyo told Moneycontrol in an exclusive interaction, post closure of a massive USD 250 million fund raise this month from Softbank. It has raised about USD 450 million so far.
Oyo is calling its new plan as the 2.0 strategy. "It will be a combination of Townhouse and Flagship brands, where we basically go to an asset owner and ask him about the investment that he is willing to make and tell him about the yield Oyo is willing to provide,” Agarwal said.
Oyo currently claims to be having 70,000 rooms listed on its platform across India, Malaysia and Nepal.
According to Agarwal, the exercise to shift from select room aggregation model was started 18 months ago in a bid to improve the customer experience by having a direct control over the entire property and increase its repeat rates.
Earlier Oyo used to book a part of the hotel's inventory holding it captive for its customers. The rest of the inventory a hotel owner used to give it out to Oyo's rivals GoStays, MakeMyTrip or others.
Problems in aggregation led Oyo to change strategy
However, the company started reducing dependence on that model following reports of malpractices by a few hotel owners which had also led to huge cash burn for the company.
Multiple instances came to light wherein customers who had booked the hotel through Oyo were denied check in citing that the room was given to someone else. In many instances, a manager would earn a better rate from a walk-in customer and let out the booked room.
The company also received lots of flak on social media following poor customer service, including quality of inventory in some parts of India.
This led to a change in strategy for the Gurgaon based company.
Typically initiatives such as Flagship and Townhouse are being run after leasing the properties from the owners for a specified period of time.
Will there be a complete shift to franchising business?
"The reality is that after it reaches more than 90 percent of revenues, then it is the only numbers game," Agarwal said.
Will offer rooms at Rs 499 a night
Oyo recently raised about USD 260 million from existing investor SoftBank besides some new ones such as Hero Enterprises and China Lodging Group.
With this money, the company will go aggressive with its customer acquisition strategy by offering rooms for as low as Rs 499, as it hits new markets.
Oyo is getting direct competition from the Nasdaq-listed MakeMyTrip that also acquired rival online travel agency GoIbibo, in one of the largest acquisitions in this sector and is now aggressively looking to capture the hotel segment.
MakyMyTrip too recently raised USD 330 million from existing investors Ctrip.com International and Naspers and plans to be in the growth mode till at least 2020, triggering a potential price competition with Oyo.
Will there be another round of deals and discounts following this recent investment round for consumers?
"We will always be the lowest price, best location and great quality across our properties for our customers and operate at the occupancy levels, we operate at. If that means our customers will get a great price, it is perfect, but all of this will happen with a very strong unit economics," said Agarwal.
Operating at 15% net margin & going back to roots
"We are now at net margins of over 15 percent. We will continue in that direction of saying that we will operate at healthy margins with our partners but in specific areas, we will continue to aggressively invest in the market as well. If we need to tell our customers that there is a hotel in this area of Oyo, why don't you come try it? Those places we might be in the Rs 499 a night for customers," he added.
According to Agarwal, Oyo started off by maintaining exclusive properties only and remained so until the end of 2014.
It was only in 2015 that it started partnering with part of hotels. It's now completing a full circle - by going back to it's roots.
"We thought of it as basically getting a foot in the door because we were competing very aggressively with another player around that period of time… Zo Rooms,” he added.
Oyo had later acquired its arch rival Zo Rooms in 2016, in a deal that still remains inconclusive.
There still isn’t any clarity on the same, as yet. Agarwal denies to comment further on what happened with acquisition of its rival.
Zo Rooms however, shut down operations last year giving a free hand to Oyo to experiment with its brand.
"By the early 2016, we realised that we had a significant market share. We felt it was time to go to our partners and say that now that we make so much value for you, can we get the opportunity to make the entire value stream for you," he said.
"We basically go to an asset owner and say, what is the investment that he is willing to make and against that investment how much would be the yield we are willing to provide. Just to give an example, a property yields can fundamentally double, if you are willing to put an investment of a Townhouse compared to that of an Oyo Rooms," he added.
The company along with the owner makes investment across its properties to renovate them. While the activities will range from one property to another, it typically consists of makeover including wiring, ceilings, flooring besides the fixtures etc.
Become a management operator
Talking about the recent fund raise, Agarwal said that, "Every rupee of investment will go into upgrading customer experience or to bring great quality assets in the right locations."
According to the company, today there's more than USD 20 billion worth of real estate in India where the owner has a different business.
"He basically gives his property to us in the form of either a franchise agreement or a management operator agreement. Both of these are the core capabilities that allows us to ensure that for the asset owners, we are like the asset management partners, rather just an agent selling the room," Agarwal firstname.lastname@example.org