The Case Study of OYO INVESTMENT

Oyo Rooms (stylized as OYO) is an Indian Hotel Chain also called Oyo Homes & Hotels. It is the world's third-largest, one of China's two leading hotels, homes, and living areas in the world, and is the fastest-growing hospitality chain. Established by Ritesh Agarwal in 2013, OYO was primarily composed of budget hotels.

The Case Study of OYO INVESTMENT

The Case Study of OYO INVESTMENT

Introduction

Oyo Rooms (stylized as OYO) is an Indian Hotel Chain also called Oyo Homes & Hotels. It is the world's third-largest, one of China's two leading hotels, homes, and living areas in the world, and is the fastest-growing hospitality chain. Established by Ritesh Agarwal in 2013, OYO was primarily composed of budget hotels. For six years, the start-up has expanded internationally with thousands of hotels, holiday homes, hundreds of cities across India, Malaysia, UAE, Nepal, China, the United Kingdom, Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, and the USA. The investors of the company are Soft Bank Group, Green oaks Money, Sequoia India, Hero Enterprise, Airbnb, Lightspeed India, and China Lodging. It is claimed that OYO now boasts more inventory than it does in India. It works in more than 290 cities with 320,000 unique rooms and more than 7,000 houses. In India, there are over 8,700 leased and franchised buildings and over 173,000 rooms in 259 locations.


 

Ritesh Aggarwal, CEO

Ritesh was born to a business class family in Bissam Cuttack, Orissa. It was a matter of fun and learning to him during the rising days of Rayagada, Odisha, but his ways were very unconventional from those of other children. His enjoyable aspects include shaking the machine and striving to discover ways to avoid mistakes, to learn new things. And he got a huge curiosity in tech in doing that! He borrowed programming books from his elder brother to quench his thirst. In the school itself, some of the simple languages like Basic and Pascal were taught and the rest he was able to learn from Google Baba.

However, he spent much of his time going to entrepreneurship activities, slipping into events and seminars because he could not afford to cover the admission fees. On those journeys, he booked rooms at various B&Bs and discount hotels. Noting the uneven nature of these quarters, he wanted to turn this common Indian travel issue into an enterprise. At 17, he dropped out of college to find Oravel Stays. Essentially an Indian equivalent of Airbnb, Oravel Stays was fueled by Rs. 30 lakh funding from the Startup Nursery accelerator. A year later, Agarwal was chosen for the Thiel Fellowship, an Entrepreneurship Initiative providing support and mentoring to young entrepreneurs who are leaving college to start a venture.


 

OYO Rooms

In the year 2012, Ritesh Agarwal launched the Oravel Stays to allow the listing and booking of the budget accommodation. After months of study and stay in various bed and breakfast homes, guest houses, and small hotels around India, Oravel moved to OYO in 2013. OYO Rooms was nothing but an idea to establish India's largest chain of effective, young, standardized rooms with the goal of creating the coolest chain of no add-on rooms that may not have spas, gyms, etc. like star hotels, but will live up to the simple quality and high price demands like never before. To ensure that the hotels meet their expectations; OYO Rooms reached out to prospective hotels or the hotel owner could even reach out to them and OYO's team would visit the venue, inspect the hotel to understand the improvements that would be needed to standardize the property as per OYO requirements and share the same with the hotels.


 

Business Model Approach OYO Rooms

OYO Rooms claims to be a curated network of budget hotels and thus separate from other hotel aggregators and OTAs (Online Travel Agents) such as Goibibo, MakeMyTrip, Plain Trip, Yatra, etc. The business model of hotel aggregators is easy as they basically link the guest (customer) to the hotel by listing hotels on their website and taking the commission as their income. They also strike a contract with hotels with a minimum order guarantee every month and therefore offer preferential prices and arrangements on room rates in contrast to the rates offered directly to ordinary guests. This makes them lucrative to the tourists.

The OYO Business Model is a distinct one. It does not own any hotels, nor is it a hotel aggregator. OYO works with non-standard hotels and blocks rooms by buying them for a certain amount of time. It then resells OYO's room inventories to the visitors. Of course, this business model of OYO Rooms adds a lot of running expenses and needs massive working capital to first block those rooms. The way OYO Rooms work is different from OTAs since they rely on co-branding. They say they're working with zero to 2-star hotels and even guest rooms, 'standardizing' them and taking customers across their websites and applications.

OYO has to purchase the rooms for the whole month to declare it as 'their property' and then 'standardize' it with their kit, set up, and then sell it online under their brand name. The hotel is already delighted to get the money upfront, regardless of whether the merchandise is being used or not. Whether or not OYO is willing to resell these rooms is not the concern of the hotel as they have the invoice. OYO is the reseller of the hotel space. Instead of getting a commission, they buy the rooms and then resell them at their own prices, maintaining their margins. To do this, money is being spent on standardizing these rooms and on co-branding as well.

The Oyo Rooms business model was similar to the normal aggregator business model (Uber for x business model) but still had the core of the franchise business model. The company used to do –

  • Previously, rent part of the hotel's inventory,

  • Organize the hotel rooms under their brand name – Oyo Rooms

  • These partner hotels offered uniform service to the clients of those rooms, as agreed in a contract with Oyo.

  • Bookings were made via the Oyo Rooms website and the mobile app.

The new operational model for Oyo Rooms is close to what it was before. It's just that the business no longer rents hotel rooms, but asks the hotel partners to run them as a franchise.


 

OYO’s Revenue Model

To earn money, the OYO rooms followed Aggregator Model earlier. For this market and sales model, OYO used to enter into a relationship with hotels, property managers, and room owners. The OYO team used to introduce clients to them but with their titles. Customers were not offered the option to choose the hotel on their own. The OYO team also used to visit every hotel to ensure that the quality expectations they choose to provide are preserved. This model was successful, but OYO earned only 22 percent of the revenue generated.

They switched to the Pure Franchise model in 2018. Under this model, hotels were encouraged to operate as an individual agency, but we should obey the terms and conditions and techniques communicated by the OYO team. In addition, users were given the ability to choose the hotel on their own rather than being clueless. Oyo charges hotels about 20% of the franchise for room sales as hotels join its network, but some Indian hotel operators claim that start-ups frequently end up collecting half or more of the revenues from payments that were not originally reported. In 2018, OYO Hotels & Homes completed the transition to a 100% leased & franchised hotel chain. Following this, the entire hotel is being redesigned as per OYO brand and quality expectations, with Capex, invested in properties mainly by asset owners to offer key commitments to our consumers and ensure better returns to asset owners.


 

Key Learnings

  • Build a good working atmosphere-It is important to create a good working environment for the workers since this contributes to an improvement in the productivity of start-ups. Oyo has built a good working atmosphere for workers. Oyo has created an atmosphere that has added greatly to the environment of the start-up.

  • Invest in the right resources-whether it's working people or policies, invest in the best. Investing in the right tools, such as professional professionals, the new technologies, the best techniques can lead to a good outcome.

  • Consistently Placing Efforts-The biggest mantra to be effective is to be positive. Rushing after finishing the tasks can be risky for the organization. Believe in designing the ideal product or service, rather than building it efficiently. Invest in the creation of the perfect methods and systems that matter.

  • Invest in Change-a It's human nature to get bored or tired of using one thing for a long time. Effective people are advised to put about creativity that draws people. The move should be worth waiting for and should have a positive effect on people's lives. The improvement that Oyo has made to its offerings is that it has extended its deal to launch various types of hotels that cater to different customers with different needs.

  • Keep Tough-There will be moments where you have to make major choices about the future of the business. Make a judgment based on the inner intestines. Stand tall as a lot of obstacles would cause you to take you down. Be confident and willingly solve these obstacles.

By -

Kosha Doshi