Treebo to beef up hotel portfolio to 2,000; taps into Accor brands to grow in mid-market segment

Treebo

Continuing its bet on affordable travel, home-grown hospitality player Treebo is now tapping into mid-market hotels through its tie-up with Accor, one of the world's largest hotel chains that runs multiple brands across price points in India such as Fairmont, Sofitel, Novotel and Ibis.

Sidharth Gupta, Chief Executive officer (CEO) of Treebo Hotels, is counting on Accor's portfolio expansion along with expanding properties under brand Treebo.

The company is targeting 200-300 hotels every year in its portfolio of economy hotels with a total of 2,000 hotels in five years.

In addition, it also expects Accor to add more properties under its mid-market brands ----Ibis and Mercure.

"Over the next five years, Accor intends to add around 180 hotels across all its brands. I estimate about 40-50 percent of those to come from two brands--- Ibis and Mercure, because they present the largest opportunity as they belong to the most voluminous segment. So, we expect about 80-100 hotels over the next five years under these two brands," he told Moneycontrol recently.

Under the agreement, Treebo will develop two of Accor's brands -- Mercure and Ibis -- on an exclusive pan-India licence basis.

"Accor was a small investor in Treebo. It first invested in us, back in 2021. As part of the current transaction, they have invested a bigger amount and are now the largest minority shareholder in the company. This capital will be used to grow the new business segments, particularly the mid-market space, which includes Accor's brands and its own brand called Medalio," Gupta added.

Gupta said that both the brands are very strong in the mid-market segment.

"We have signed 10 LoIs (Letters of Intent) for these brands in some interesting city mix, focusing on the Tier II and III markets, including Alwar, Haridwar, Kozhikode, Siliguri and Mysuru. This speaks volumes of the amazing growth opportunity available in India in these smaller cities. We will capture that through this combination of brands," he said.

There is a huge need gap, he said. "Hospitality in India has been all about luxury, upper upscale, and mostly focused on Tier I cities and metros. Some of the smaller cities haven't really had a lot of good branded hotels. For a place like Alwar, our property would probably be the very first branded hotel in the city. There is a big white space but there cannot be a five-star hotel in each of these small cities. While people have come up the income curves and the local economies are flourishing, people can't immediately start to spend Rs 15,000- 20,000 on a hotel room. Here, the mid-market brands come in, offering a great experience at an affordable price point, perfectly suited for these small cities."

Gupta highlighted how developing countries, like China, and Latin American countries saw travel booming when people's income started reaching $2,500 to $3,000 GDP (gross domestic product) per capita mark.

Gross domestic product (GDP) per capita is an economic metric that breaks down a country's economic output to a per-person allocation.

"India has just hit that mark. We are now at about the $2,700- $2,800 mark and set to reach the $5,000-mark over the next six- seven years in terms of the GDP per capita. I think this is what is driving travel in the country. For the average middle income Indian, these (mid-market hotel) brands will be a great unlock. Tier II and III markets will be the next big set of opportunities because they're highly underpenetrated, in terms of good branded hotels," he said.

He expects millions of new travellers opting for the affordable hotel segment.

"It is estimated that, over the next 6-7 years, around 60 million households will move into the middle and upper middle income segments. If we take an average size of a family of four and even if we take half of these people who are interested in travelling, we are talking about 100 million travellers over the next 7-10 years (opting for hotels) in this affordable price point," Gupta said.

During the Maha Kumbh Mela, Prayagraj was one of Treebo's most profitable and highest volume destinations. "The demand has still not slowed down. People might think that Kumbh was a phenomenon or a one-time activity. But it is a behaviour. It's not a one-time event."

Treebo is coming up with properties in Nashik where the next Kumbh will be held.

While in the mid-market segment, Treebo looks to compete with brands like Royal Orchid and Lemon Tree, it sees no direct competitors in the economy segment.

"In the last 10 years, we have created a model which combines asset-lightness and relationships with on-ground local franchises, coupled with massive technology deployment and a strong demand distribution engine, allowing us to create a real at-scale brand in this segment. I don't immediately see direct competitors for the Treebo brand in the Rs 2,000-2,500 (economy) segment because everyone has eventually moved upwards to the Rs 4,000 segment. So, we have headroom to grow," the CEO said.

He is looking for Treebo to turn profitable by FY26.

"In the last financial year, we crossed a revenue of about Rs 120 crore. The consolidated revenue of all our hotels put together would be upwards of Rs 650 crore for the full year. We are not yet fully breakeven on a full-year basis, but we are getting there. Several months of the year were profitable, but not yet on a full-year basis. We expect to be profitable on the Treebo side of things, not on the whole business because we are going to invest on the mid-market side. But on the economy segment, we expect FY26 to be profitable on a full-year basis," Gupta said.