OYO Hotels & Homes claims to be South Asia’s largest, China’s second largest, world’s third largest and fastest-growing chain of hotels, homes and living spaces with 23,000 hotels, 125,000 vacation homes with over 1 million exclusive rooms spread across 800 cities in 80 countries. In an interaction with The Passage, Aditya Ghosh, CEO - India & South Asia, OYO Hotels & Homes fielded questions ranging from OYO’s business model, expansion plans and recent controversies.
The Passage: How did OYO's business model evolve since 2013?
Aditya Ghosh: Ritesh Agarwal, our founder & CEO (global) started OYO in 2013. It was an online hotel aggregator back then.
There was and continues to be a huge disconnect between demand and supply of quality living spaces, forcing travellers and city-dwellers to compromise on location, quality and price.
Since its launch, OYO has brought about a change in the budget hotel franchising and leasing segment, giving Indian consumers that were earlier subjected to exploitation by touts, poor quality customer service and mostly unhygienic living spaces, the opportunity to experience standardised hospitality at affordable prices. Ritesh wanted to fix this problem by using design, technology, and talent.
Our business model has evolved with time. In 2015, we realised that in order to provide a consistently high customer experience end-to-end, it was not sufficient to just aggregate hotels. We decided to pivot our business model to a full-fledged hotel chain that leases and franchises hotels.
The branding also changed to OYO Hotels & Homes from OYO Rooms. We started investing heavily in strengthening our capabilities both in the form of technology, talent and network, while creating an ecosystem of efficiency through which we were able to deliver higher yields for our asset owners.
The Passage: How has Softbank's backing helped OYO strategically in growing and expanding to new geographies?
Aditya Ghosh: SoftBank is our largest investor and has been instrumental in our journey so far.
Masayoshi Son is one of the most impactful and innovative thinkers and problem solvers. We are one of the approximately 100 portfolio companies of SoftBank Vision Fund.
Two things that have really stood out when it comes to our relationship with SoftBank Vision Fund is that they have always maintained that OYO is a management-driven company.
Secondly, the board members of SoftBank constantly add value with their suggestions. We have found inputs from Masayoshi Son to be transformative to our business.
We understand that each market is unique in its own way, so we localise the product experience and interiors of our buildings, and our overall approach. We have done that successfully in China and are in the process of doing it in the UK and US as well.
The Passage: According to Booking.com's current customer rating report, OYO is rated 4.9 out of 10, while Treebo and Fab are rated 7.9 and 7.4 respectively. Your thoughts?
Aditya Ghosh: The data at our disposal indicates the rating of OYO mentioned above is grossly incorrect.
According to Booking.com’s latest customer rating report (as of 21st August, 2019 ), the cumulative customer rating for OYO across all properties in India is 7.05. It is pretty much similar to what has been quoted about the other brands mentioned here.
Having said that, we have been able to deliver good customer experience which has helped us to scale up rapidly. Today, over 90% of our business comes from repeat and word of mouth customers and we have already hosted over 50 million guests globally.
The Passage: There have been allegations that OYO only focuses on volume, and hence has compromised on quality. How do you balance these two aspects?
Aditya Ghosh: I would like to clarify that these allegations are baseless and motivated.
In the service and hospitality industry, one needs to be constantly evolving to meet changing consumer demands. Customer experience at scale is the core focus for all of us at OYO. So I would say that customer experience and scale are not mutually exclusive or given precedence over another.
We conduct stringent quality checks before a hotel is onboarded, and also have surprise audits, etc. which has today helped us ensure that there are very few unfortunate experiences.
We have a 24X7 channel offering assistance to customers and our social response systems are super quick. We respond within minutes of receiving a complaint. We believe that when it comes to experience, there is always room for improvement and that can be achieved if you listen to your customers carefully.
The Passage: How big is the corporate travel for OYO? How many corporates does OYO work with currently and what portion of revenue comes from this segment? Also, how do you see corporate segment contributing to the company's overall revenue in the next three to five years?
Aditya Ghosh: We have three brands catering to corporate travellers in our portfolio - Capital O, Collection O and SilverKey.
Capital O is our offering for the new-age travellers with the functionalities that they look for when it comes to business and leisure Stays. With SilverKey, we are providing executive furnished accommodation to corporates for their personnel stay. Currently, operational across 11 cities.
Our brand Collection O primarily caters to the new age corporate travellers looking for quality and affordable accommodations while meeting their professional and personal requirements.
The customer base of Collection O comprises corporates and SMEs like Nestle India, Future Group, Apollo Hospitals, BYJU’S among others. It continues to see 92% traction coming from repeat & word-of-mouth guests. With approximately 85% occupancy on average, Collection O has witnessed almost a 30% increase in corporate bookings in the past quarter (Apr - June 2019). We aim to expand Collection O from 37 cities to 50 cities by the end of FY 2019-20.
The Passage: What are your diversification plans?
Aditya Ghosh: In addition to hotels and homes, we have the long term managed rentals business called OYO LIFE (India and Japan currently) and co-working spaces called OYO Workspaces in India.
Headed by my colleague Rohit Kapoor, CEO, New Real Estate Business, these two verticals are going to be major focus areas in parallel with our hotels and homes businesses.
OYO LIFE is targeted at millennials and young professionals in search of fully managed homes on long-term rentals, at affordable prices. Under this category, we offer end-to-end managed, comfortable, and high-quality living experience that eliminates the hassles of finding, accessing and managing everyday housing.
Since its launch in October 2018, OYO LIFE has more than 350 buildings, 17,000+ live beds and is adding 3000+ new beds every month making it one of the largest businesses for branded, fully-managed housing for millennials globally.
OYO Workspaces was officially launched last month with a multi-brand approach to cater to the massive workspaces opportunity in India - Innov8, Powerstation and Workflo. It is a fully controlled workspaces solutions provider, designed to meet the needs of over 80% of the working population in the country.
We had acquired Weddingz a year ago and have been amazed at its growth as it has witnessed 480% growth in revenue.
The Passage: How has been the growth over the last two years, and what are the company's expected top line and bottom line for this financial year?
We had a fantastic 2018. Globally, we had 450,000+ fully controlled leased and franchised keys as at December 2018 with realised value run-rate of USD 1.8 billion (4.3x Y-O-Y growth). We had a stellar 2018 in India as well with 172,000+ fully controlled and leased keys as at December 2018 with realised value run-rate of USD 1.2 billion (3x Y-O-Y growth).
2019 has also been equally promising. While we are still a few months away from the end of 2019, we are happy to note that we have grown 4.3x in June 2019 (Y-o-Y vs June 2018) in terms of net realised value. We have already crossed 1.1 million rooms at a global level and are on course for a great finish to 2019 as well.
On a Y-O-Y basis, we have seen that not just our buildings are operating profitably at the building level but our EBITDA has also improved by 50% Y-O-Y.
The Passage: OYO has launched a partner program for hotel owners earlier this year. But still, there are many hotel associations that are against OYO. The allege OYO has ruined their business by slashing down the prices. What is the company's stance on this, and how does it handle such situations?
Aditya Ghosh: I would like to state this categorically that this is an incorrect and motivated statement.
We are a customer-first company, and will do all we can to ensure that at no point in time the customer experience is compromised.
If OYO Hotels were to determine prices without using a scientific logic to the decision, we will be the first beneficiary. But with our experience, we understand that this will disturb market dynamics and cause a disservice to both customers and asset owners. The real estate owner will then see a dip in occupancy, and thereby fall in revenue and profits.
And customers will not find the accommodations affordable, which defeats OYO’s larger mission of creating affordable quality living spaces for over 3.2 billion middle income people around the world.
Having said that, we continue to engage with all our hotel owners one-on-one and on a regular basis leveraging the multiple channels available at their disposal. As a direct outcome of our constant engagement with the hotel owners, we launched the OYO Partner Engagement Network (OPEN) in April this year.
We announced six core promises as part of the launch of OPEN which included transparent payment protocols under which our hotel owners will receive 18% interest on delayed payments and resolution for exceptions will be done before the due date.
In May, we launched another major initiative under OPEN called Cash in Bank (CIB). It is an industry-first initiative wherein asset owners across India can benefit from quick, hassle-free and collateral-free business advances to upgrade or renovate their buildings, with the never seen before ease, turnaround time, and convenience.
In addition to disbursing INR 45 crore in June, we have already enabled interior capex with a 170 crore disbursal pipeline by the end of July. In August, we launched the third major initiative under OPEN called Partner Privilege Program for the asset owner community in India.
Having said that, it is also pertinent to note that our hotel owner annual retention rate is as high as 99.5% across the chain in India & South Asia. On an average, over 75% of hotel owners associated with OYO have seen an increase of almost 3x+ in occupancy, a 2.5x jump in RevPar and a significant jump in profit.