Oyo Rooms
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2018: no. 1 chain in India
This 24-year-old is shaking the global budget hotel biz, October 21, 2018: The Times of India
Ritesh Agarwal’s Oyo is already the biggest hotel group in India, fast getting there in China, and is now breaking into UK, UAE and Indonesia
When you talk to Ritesh Agarwal, you can barely believe you are talking to a 24-yearold. You think you can at least make him fumble with questions about those who write nasty reviews – “the worst of worst experience” they had in an Oyo hotel. But no, he’s cool, explaining how they have gone about improving infrastructure and service quality, how overall app ratings have been at 4.5 (out of 5), and with humility admitting that there’s also work to be done.
And then you begin to get a sense of why people like SoftBank founder Masayoshi Son are betting so big on him. Last month, Son’s Japanese holding company, along with others, invested a billion dollars in Agarwal’s Oyo Rooms, valuing it at $5 billion, and making it India’s second-most valuable startup after Paytm.
Of course, there’s also Agarwal’s track record. The scale that he has achieved in barely five years – he started Oyo when he was 19 – is mindboggling. In number of rooms, Oyo is now the biggest hotel chain in India, nine times bigger than the No. 2, the 115-yearold Taj Group. It’s valued more than the Taj Group and the Oberoi hotel group combined.
And at its present rate of room additions, it could become the world’s biggest on that metric in the next few years. The Marriott Group is the leader with about 1.2 million rooms, followed by the Hilton Group, with about 840,000. Oyo is at 213,000. But in just one recent quarter, Oyo – which is present now in India, China, Malaysia, Nepal, UK, UAE and Indonesia – added about 80,000 rooms, while Marriott and Hilton did about 7,000-8,000 each.
Agarwal’s proposition is unique. In his words: “94% of the hotels (in the world) are 100 rooms or smaller, and 100% of the hotel chains have hotels that have 100 rooms or more. We are the only hotel chain that knows how to operate a less than 100-room hotel profitably.”
He does this with a mix of infrastructure and service quality improvements, and a dynamic pricing model, many of these involving use of modern digital technologies. The immediate impact of this is in occupancy rates.
Agarwal tells us the UK’s is the freshest example (Oyo entered the market just last month) and he must talk about it. “The first hotel we opened was in Sussex, called Oyo Townhouse. It started at 60% occupancy. And in just four weeks, we grew it to 94% occupancy. Because we did a great job of the service quality, took the ratings of the hotel significantly up, and provided dynamic pricing,” he says.
It’s the same everywhere. In China, he says, every hotel that has joined the chain has gone from 25% occupancy to 65% occupancy in two to three months.
The math, he says, is straightforward. “In every neighbourhood, you always have 20% of the hotels getting 80% of the business because the rest of the 80% of hotels do not have the right kind of infrastructure in terms of lobby area, bedroom, kitchen, and so on, and the right service quality,” he says.
Though each Oyo hotel is a leased or franchised operation, all infrastructure and service responsibility is Oyo’s. Oyo has about 400 construction managers each in China and India to make sure that every act of renovation is fully controlled by the company to upgrade the quality of living. And every general manager of a hotel is an Oyo employee who takes the responsibility to train each of the staff to ensure there is consistent quality of housekeeping and in-room dining. There are also 25 Oyo skill institutes between India and China where staff are trained.
Oyo handles revenue management too. Agarwal says it is quite hard in hotels to decide what channels of booking to use, how much of inventory and which category of rooms to make available in each channel, what should the pricing be, what should the offers be, what hour of the day should you increase the price, reduce the price.
“We use technology for a lot of efficiency in training our hotel staff, in the property management system, in pricing on a multichannel framework,” Agarwal says.
Anirudh Damani, partner at Artha India Ventures that funded Oyo in its early stages, says Agarwal’s big strength is his attitude to challenges and people. He recollects Agarwal meeting him in a pair of torn jeans when he was 18. “I asked him for a driver’s license but he did not feel offended. He doesn’t get worried when he is questioned on his credibility as an entrepreneur. We did mystery shopping as part of due diligence before investing in the company and we had our share of bad experiences, but he made up for it by personally writing to me apologising. That kind of maturity is rare in a young entrepreneur,” he says.
A competitor, who did not want to be named, admires Agarwal for having built a senior leadership team with credible names. Most of them have stuck with Agarwal.
Siddharth Goenka, who runs the budget hotel chain Octave Hotels, wonders though whether standardisation of service is possible when you don’t fully own and operate the hotel, and especially on such mass scale. “And if you can’t ensure that, people could lose trust. Besides, with hotel user ratings now available, a brand alone is not a decisionmaking criterion for customers,” he says.
Then there are those who ask whether Agarwal is burning too much investor cash, including to give attractive, and perhaps unsustainable, offers to hotel owners.
To that, Agarwal says Oyo is already making a 20% margin at an individual hotel level, net of customer and owner subsidies, and channel distribution cost, and every year that percentage is improving. He says losses are primarily because of the investments being made in R&D, top talent and skilling schools.
The biggest stability for Oyo perhaps comes from its Chinese operations, where it is adding about 30,000 rooms a month. “Ritesh has got the Chinese government’s blessings,” says one industry observer. Agarwal says the success is because he’s built the Chinese operations like a Chinese company. “Of our 3,700 Oyo entrepreneurs in China, only 20 speak fluent English. A lot of foreign companies try to hire bilingual staff. But we only care about people’s mission and hunger to execute well every day,” he says.
