Budget hospitality start-up OYO is replicating its India strategy in China

In less than nine months of launch, OYO has managed to become a leading budget hotel brand in that country with about 50,000 rooms spread over 1,000 hotels in China

If you have heard of piggyback rides and are not sure what purpose they serve, look at OYO for the answer. India’s budget hospitality startup hit upon a novel way to push the brand in China. After stepping into the market in November last year, OYO used the platform of China’s ride-hailing giant Didi to announce its arrival and stay top of mind. “If you open the Didi app in some of the Chinese cities where we have a tie-up for promotion it will say: Ride comfortably with Didi, stay comfortably with OYO,” says Ritesh Agarwal, the 24-year-old founder and chief executive officer of OYO. SoftBank is a common investor in both the companies.

That ride has helped. In less than nine months of launch, OYO has managed to become a leading budget hotel brand in that country with about 50,000 rooms spread over 1,000 hotels (as of July 2018). That also makes OYO Jiudian (that is how the company is known in China; Jiudian is the Chinese word for hotel) the 12th largest player in China by the number of rooms and the eighth largest by the number of hotels under management. OYO’s leading competitors in that country include Homeinns, 7Days Inn and Super 8.

What drew OYO to China? Agarwal says China has 32-34 million non-branded hotel rooms compared to four million non-branded rooms in India. Therefore, scaling up is much faster in China. In India, the startup took three years to reach a similar scale. 

These non-branded rooms are spread over a large number of small hotels where most owners find operating the asset profitably a big challenge. “Most non-branded hotels in China have less than a hundred rooms each and their occupancy ranges between 20-30 per cent,” says Agarwal, adding that a thousand hotels that have become part of OYO’s network are seeing a significantly higher occupancy rate of 70 per cent.

Agarwal says, the world over, investment in real estate is considered safe. “Investors put their money but are happy with a low return because the asset also has some value appreciation. These investors have less time to manage the hotel.” As a first step, OYO invited a number of asset owners to demonstrate the kind of returns that their assets could generate. “We specialise in operating a small hotel profitably and that is what we bring to the table. We have seen a great momentum in China in the last three-four months. The pace of signing up is much faster than we anticipated,” says Agarwal. 

OYO’s approach in China has been more or less similar to its strategy in India. It has control over the interior and exterior design, sets standard operating procedures, brings technology in asset management and controls pricing of these hotels to make the owner’s life a bit easier. OYO has a general manager for every two hotels in a neighbourhood and there are 500 such managers taking care of its assets. The company has set up five OYO Skill Institutes to train manpower employed by these hotels. 

Ritesh Agarwal Founder & chief executive officer, Oyo

A number of these asset owners have now started investing in a second property to be run as an OYO hotel. OYO, says Agarwal, has a robust pipeline of signed assets in China, so the addition of rooms every month is going to be substantial. The company is not operating in China with the vision of becoming the biggest in the space though. “Our core mission is to be the most impactful hospitality brand for large middle-income users,” he adds.

“We are fairly affordable — priced 20-25 per cent cheaper than our competitors in the same locality,” says Agarwal. On an average, the rooms are priced around 130 to 150 Chinese Yuan (Rs 1,326 to Rs 1,530 approximately). “A high repeat rate from users is aiding our occupancy rates. Users in tier II, III and IV cities of China consider OYO a preferred upgrade option.” Going forward, OYO will introduce its premium brands in that country. OYO has about 100,000 rooms in operation in India. Given the pace of growth in China, that market might soon become bigger than India.  Agarwal does not want to be drawn into comparisons. “These are separate markets with a different market structure. India has been and will remain our core focus,” he says.