The Oyo Hotels and Homes founder opens up about the $10-billion hospitality company’s troubles and each of the critical issues gnawing at it in in his most wide-ranging interview yet.
Oyo Hotels and Homes, Japanese investment conglomerate Softbank’s blue-eyed portfolio firm in India, is one of the several businesses that have been hit hard by the pandemic. The hospitality startup has been beset by a drop in revenues and occupancy levels, grappled with multiple senior level exits and was forced to let go of some properties around the world. And now it faces fresh backlash from numerous hotel owners who are crying foul that it reneged on commitments to the pre-agreed terms after the pandemic. Some have also taken the company to court. In an exclusive interaction with Moneycontrol, Ritesh Agarwal, founder and CEO of Oyo, opens up about the $10-billion company’s troubles and each of the critical issues gnawing at it. Agarwal is optimistic — he thinks the hospitality industry will not take long to recover from the blows of the pandemic.
The hospitality sector has been one of the worst affected by the pandemic because global and domestic travel had dropped to a trickle. What really is happening with OYO in terms of employees, jobs, expansions and profitability?
As you mentioned the hospitality industry and Oyo in particular got impacted by a drop in occupancy due to the impact of Covid. However, Oyo is lucky to operate in two specific segments. The first one is the economy hotels and the second one is vacation homes.
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In the economy hotel segment, if you see globally both due to a sense of safety in smaller and boutique hotels as well as because it is affordable, we are seeing that consumer demand across the world is picking up. So the best results that we started seeing were actually in Europe.
In OYO Europe, we have seen our business jump disproportionately. For instance, one of our biggest markets in Europe is Denmark, whereas business has seen almost a two times jump year-over-year and in the month of July, operating at around 98 percent occupancy.
We’d never seen this kind of increase in business. The reason is that the consumers are actively moving towards vacation homes as a preferred choice.
In the US because again, our hotels are focused on the economy segments, our customers are largely essential workers, either people in the logistics business, or pharmaceutical business, or oil and energy business. So I'm happy to share that our US revenue has also gotten to around 120-130 percent of our pre-COVID levels.
I’ll give you two more important market context. One is Southeast Asia, wherein multiple countries are at upwards of 100 percent bookings on our app, even though our overall bookings are still at 60- 65 percent of pre COVID levels, because our non-app business is coming back lower than that of our app business.
And in India, our recovery, because the lockdowns were the longest started only a couple of months back. Last week, we stated our occupancies had reached 30% of pre COVID levels in India. But we anticipate that this will actually continue to rise.
The exact numbers as of today or this month we will find out and share with you, but my sense is that should be in the 40ish percentage.
How much did each market constitute in terms of revenue so that we have a fair sense of where is the business positioned right now?
Typically, we do not disclose specific geography wise revenue as such. So, I wouldn't be able to comment on it.
Tell us more about the recovery in the India market.
From the consumer trends perspective, there are three segments of business we have in India.
The first is the urban market—the top 10 cities. Then there are 20 to 30 large Tier 2 or 3 cities which are still business-oriented cities. And then there are 20 to 30 big holiday destinations in India. So until early September, the recovery was being led by urban cities as well as our small towns, but more business towns. The leisure business was not coming back as quickly.
However, you may have seen in the last two weeks, multiple states like Himachal Pradesh and Uttarakhand have eased their restrictions on travel, which is leading to a disproportionate amount of consumer traffic wanting to take a break and visit a lot of these holiday towns as well.
We’ve seen various kinds of consumer interest like work from anywhere…like you spend a month working in the hills or close to a beach. So consumer demand trends like those are showing some early encouraging signs.
My sense is the OYO Homes side of business which is India’s largest home management or home rental company as well as our economy hotels will see a strong jump in that geography.
The consumers who are actively responding are millennials, essential workers of companies linked to the essential businesses, digital businesses requiring any kind of travel right from education technology to health technology and so on because these businesses are growing. And that's having a rub off effect on our business.
The businesses are yet to see an increase in the potential corporate event and training kind of system which is also a sizable part of the travel business in our country.
On the supply side in India, we see approximately 65 percent of our hotels having opened up. We anticipate that this will grow very quickly towards 80-90 percent in the coming months.
The second thing that we are seeing is that our partners are appreciating very significantly the various improvements we have made for them, which is the last time we talked about reconciliation. If you spoke to our partners they would say that they didn’t have full pricing control. So we’ve given flexibility to our partners on pricing by means of tariff managers, a small flexibility. Today, almost 85% of our partners are actually adopting it. We’ve used technology to be able to ensure that we resolve the issue for our partners and customers, so today almost 85% to 90% of our inquiries from both customers and partners come to us (through) chat based bot programs.
We’re using this period for technological improvements, so these are the kind of things we’ve done for a stock which is past hotels.
But new hotels are also very critical. We have increased the requirements of quality for our hotels. So when a hotel joins -- earlier they used to come with a 140 points checklist, now there are at least 20 additional points that have been included with the safety, security aspects that exist in the new room.
For the last three months consistently we have signed upwards of 40,000 rooms every month across the globe.
Even as you say that, one of the crucial developments we have been witnessing is the increase in the blowback from the hotel partners. While it used to happen in the past as well, post pandemic it has increased multifold. Every other day some or the other hotel is crying foul or talking about breach of contract or taking Oyo to court or demanding a settlement. What has gone wrong?
OYO India, pre pandemic had around 95 percent hotels which is a part of our franchise ecosystem. If you look at any kind of reportage of partners sharing their feedback or not being fully satisfied, you will interestingly figure that none of those asset owners are actually our franchise asset partners (they are the rest of the 5%). Due to various reasons, we have had to restructure our relationship with that specific group of partners.
Some of the partners have not been in full alignment with the reason or the context that we have shared. That is the reason why we had some of the feedback or complaints. However, if you look at the absolute number of these issues, you will realize that a large number of them, which were past issues we have resolved. And the current ones as well we continue to be engaged to work with them.
So how often are you to open for an out of court settlement? I am asking this because there is this Chennai based hotelier who had filed a case against the company. It is leant that he has agreed to withdraw the case since Oyo has agreed to pay him Rs 35 lakh as compensation basis a mutual agreement. Can you comment on this instance? Also how comfortable is it for OYO to have out of court settlements? To what extent are you ready to make payments to these disgruntled hotel owners?
It is very hard for me to comment on a specific hotel. I'm not aware about this specific case. And even if I was, I think I will respect the confidentiality provision between us and our partners.
In India, we have 10,000 plus hotels. We would have disagreements like these in the double digit number of assets, which is less than 100. And with each of the partners OYO’s intention is to make sure that we remember that in the long term we both have to work together in the same segment and the same ecosystem. We would like to work together and resolve any outstanding queries as business partners, who intend to do work in the same ecosystem for the long term.
You talked about a 140-point checklist with 20 new additions due to COVID-19. While on the face of it, it looks quite promising but I have been in touch with a lot of Oyo executives who tell me that the pressure to expand at some point grew so much that people would not care to stick to these pointers. They started adding hotels abruptly on the platform. Rooms with a size of 9x9 feet, much smaller than the basic limit required for Oyo with no attached washrooms, literally dingy places where people would never really like to go, were added on Oyo. Forget about the décor, here we are just talking about the basic infrastructure which was far from being met. What would you like to comment?
I’ll take your point that there have been some hotels that there are issues and I will respond on that specifically. But before I got there, customers chose us because of the reliable quality. Pre COVID around 90% of our revenue used to be repeat of word of mouth.
Now there are two important learnings for us from 2019.
The first one is, being able to make sure that 100% of the OYO hotels activity delivered the kind of experience that we did want to deliver. That frankly did not happen across our assets and we have no qualm accepting it.
And due to that, if you remember in January or February, we actually ourselves publicly announced that we've removed 10,000 rooms from our ecosystem in order to ensure that we can deliver our consumers with an experience that is required. And on top of that, we set up an internal system that is called a central bodyguard which ensures that only the right kind of hotels come into the system.
In this quarter what that has meant is that the repeat or organic word of mouth customer base has increased to around 93%-94% and on top of that the hotel’s strategy in safety and sanitization experiences in partnership with Unilever or by means of direct partnership with our hotel with a sanitized stay tag where the RevPar (revenue per available room) have increased anywhere between 35 percent and 100 percent.
You said 40,000 rooms have been signed in every month in the last few months globally? So can we assume that these hotels are completely as per the said requirements by OYO and are unlikely to be having any issues in the near future?
Absolutely, I think not just these hotels, any hotel which has the OYO tag and then OYO signage; we stand behind the experiences of those hotels post the improvements we made in the early part of this year. And within that our consumer feedback is extremely critical to make sure whether the hotels remain in our system or not.
But there will be some specific changes you should expect that is the size of rooms. On an average, if our customers come and stay in a Gurgaon hotel room, they may get a 300 square feet room for like Rs 800 rupees. Whereas in other cities they may get a 150 square feet room for Rs 2,000 rupees.
OYO’s basic standards will be maintained but the (difference will be) because of the available infrastructure in other cities.
Let’s talk about the senior level exits in the company. I get to learn that Vivek Sinha who was heading the luxury business is exiting. So are Gaurav Ajmera who was the global revenue head and Burhanuddin Pithawala who was the global head of marketing and growth. These are just some of the few names. Why are so many senior executives exiting the company suddenly, especially when you are so bullish about the expansion plans and are optimistic about how to go forward? Isn’t so many exists a sign of instability in the company?
We have approximately 100 plus vice presidents and we have approximately 300 directors in our company. We have acknowledged earlier that two of our executives, Gaurav Ajmera and Burhanuddin Pithawala are moving on. Specifically, other VPs on country level basis you can have a separate interview in India specific format. But generally we have upwards of 100 vice presidents. We’re lucky that we haven't lost a lot of talent earlier, but at the same time these are OYO seniors who have spent five plus years in the company and are moving on due to newer career aspirations they may have.
So specifically in the leadership group, which is the top 15 executives, you have seen that till date not a single person has left the company other than Aditya (Ghosh), which was at least a year before the pandemic or nine months before the pandemic.
Beyond that, in this entire period of COVID, not only have we stayed stable, we have brought in multiple senior leaders which we have also announced like Gautam Swaroop in China, like Raj Kamal (CEO OF vacation homes)...
What is happening with the global leadership? We also get to learn that a lot of senior executives who were positioned in the global markets, for example, Maninder Gulathi and Kavikrut who handled the Europe and Japan markets respectively are coming back to India. Why is that happening?
Kavikrut remains a board member of Oyo Japan and Maninder remains in-charge of a large part of our European business. Both of them will be placed in their respective geographies. Unfortunately, due to the lockdown they got locked out or grounded in India. At the right time, both of them will fly back to their respective locations. They remain on the payrolls of those respective companies. They are not on OYO India’s payrolls even today. Maninder is on the payrolls of OYO Europe, and Kavikrut is on the payrolls of OYO Japan.
Some international reports have suggested that Softbank plans to position its own executives to turn around Oyo especially in markets like Japan. What would you have to say to that? Is your investor now looking to take things in his own hands during a time like this?
I can't comment on behalf of SoftBank but from Oyo’s perspective the following are three important contexts. The first one is that Oyo is a board run company. Majority of our board members today are independent and non-executive. The OYO Board has representation from other shareholders as well.
With that context, SoftBank Vision Fund also has a board representation and they add value by means of sharing the feedback, direction and suggestion to the Oyo board.
Specifically in Oyo Japan, there was a report wherein we have clarified in the same publication that two members of different SoftBank entities have come to us and I want to clarify that those were two board members.
Softbank’s influence is very similar to any other shareholder like that or for instance, Lightspeeed Venture Partners or other capital providers from the OYO family.
So Ritesh, last time also I tried asking you this question. Somehow I didn't get a comprehensive response. I will try touching upon those lines again. When did you last speak to Masa (Softbank founder)? What sort of conversation happened? What is the message that you are getting from your investors especially around the time of a pandemic?
On our board, SoftBank Vision Fund is represented by Munish Varma and Gerry Lopez. Their guidance to the company has been used as an opportunity to strengthen the business and actually come out stronger. That is exactly why we're investing in technology as a core part of our business. And we will continue using technology as well as our exposure to economy hotels and vacation homes to create impact.
I think from a capital-raising perspective, we still have a little over billion dollars cash along with us. Our hope is to continue focusing on our business and creating impact.
This seems to be a season of IPOs and IPO chatter. Zomato is readying itself for an IPO. Flipkart too is learnt to be in talks to begin the preparations. Is IPO a short-term vision for Oyo as well?
Our focus at this point in time is serving our customers and partners better. At the right time we’ll make a decision on what is the right timing for an IPO, but at this point of time, our focus is to give customers safe, easy to book affordable experiences and give partners increased income.
You literally took a loan of $700 million to invest in your company and bought back some shares. It is a huge bet especially now when we are sitting on a pandemic that has impacted the hospitality sector the most. In many of our previous conversations, you’ve said that as an entrepreneur you would always like to risk it than regret it. Now at this point in time, this definitely is a huge, huge risk. If you look in hindsight would you still say it was good that you took such a big risk or you would think otherwise?
Yes, absolutely! Look I think we have a large market opportunity in economy hotels and vacation homes. Of course, in the early times of pandemic we had a significant impact. However, we’re confident that we’re seeing some early recovery trends.
Our belief is if we continue focusing on our customer and partner in the medium to long term, this will mean positive response.
I'm confident that I made the right investment and it will have positive effects for both the company as well as for the investment in the years to come.
So what is going to be the strategy for Oyo? Would you look at reducing losses or continue to have aggressive expansions?
The number one focus will be delivering the best and improved customer and partner service. Number two focus will be making sure that we use technology to continuously make us stronger. Number three will be making sure that as a combination of our service quality, technology and operating efficiency, our services can be taken to enough customers and partners.
So the keyword to hear here is balance ... we will have to constantly be balanced in all of these three perspectives.
But what about reducing losses?Like I said, we will look at improving the quality of customer service and partner service. We will look at improving our operating efficiency. And we will look at improving growth. If you do all these three things, it means that the losses will reduce and the company will improve on its bottom line and top line as well. So if we do all these things right, the financial results will follow.