BEYOND BOOKINGS
Hotel room aggregators are doing much more than selling room inventory.
Hotel room aggregators are doing much more than selling room inventory
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
“OUR VALUE CREATION IS VISIBLE IN TERMS OF OUR EARNINGS AT AN ASSET LEVEL WITH REVENUE GROWING BY 2.5 TIMES” Ritesh Agarwal, Founder, OYO
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.
Five years later, there are a handful of companies that have made a name for themselves in the segment. OYO is the biggest with over 75,000 keys. Others include SAIF Partners and Matrix Partners-funded Treebo and Goldman Sachs-backed FabHotels. All three, apart from selling the room inventory on their respective platforms, are working with the hotels to manage the properties too. Earlier, the OYO model basically involved upgrading the hotel to minimum standards and help with online bookings. But now, OYO, along with others, is doing much more than that.
Sidharth Gupta, one of the three co-founders of Treebo, says the company was certain it wanted to work with the entire inventory of existing properties from day one. “We work with both existing and upcoming properties to license our brand name to them. These properties operate under the Treebo umbrella, and in order to do so they have to follow our standards,” he says. Vaibhav Aggarwal, Co-founder, FabHotels, echoes this. “We did not start out as an aggregator but instead always worked to manage entire properties.” All this comes at a high burn rate, with each of the three companies losing money at the moment. With the Indian hospitality sector expected to grow to $48 billion, according to a recent Google-BCG report, it’s no surprise that all three companies are thinking of the long term, though each claims it is not looking to raise funding at this juncture.
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
“WE DID NOT START OUT AS AN AGGREGATOR BUT INSTEAD ALWAYS WORKED TO MANAGE ENTIRE PROPERTIES” Vaibhav Aggarwal, Founder, FabHotels “WHEN YOU HAVE ALL THIS INFORMATION ON SO MANY PROPERTIES IN SO MANY CITIES, YOU’RE ABLE TO TAKE PREDICTIVE ACTIONS” Sidharth Gupta, Co-founder, Treebo
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.
The biggest challenge is standardisation of both rooms and customer experience to ensure that clients in a large metro get the same level of cleanliness and service in a smaller city too. For this, the companies have invested heavily in technology, with proprietary apps helping deliver all that is needed. As each company works with hotel owners and gets revenue from customers, each has developed at least two apps, one for the asset owner and the other for internal use to maintain a checklist. For example, Prowl, developed by Treebo, allows the company’s on-ground auditors to ensure service quality. “Prowl was born out of our desire to provide the best experience to our customers,” says Gupta. The apps, and the data they generate, allow Treebo to create in-house metrics that help the company improve its service and performance. “When you have all this data, when you have all this information on so many properties in so many cities, you’re able to take predictive actions. This tool, for instance, automatically puts a room on ‘stop sell’ the moment a serious issue is detected there,” says Gupta.
Aggarwal says FabHotels has three apps, each named after a comic book character. Gordon allows the company to track each and every room to ensure quality on-ground service, Alfred is a point of sales solution, while Bane gives owners detailed information about their hotel’s performance. The increasing use of smartphones means each company can skip investing in desktops and instead reach owners and staff on mobile devices. Consequently, the big legacy systems that are used by international hotel chains have been dropped in favour of narrowly targeted apps that are developed in-house.
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.”