The 'Fab' journey of affordable hotel businessman Vaibhav Aggarwal

The first-generation entrepreneur is expanding budget hotel chain FabHotels with the twin objective of better investor returns and excellent consumer experience

When IITian Vaibhav Aggarwal was pursuing his masters in business administration at the prestigious Wharton University in 2011, he realised that a management degree was like an insurance policy.

If you park the car but do not take it out for a ride, what is the point of the insurance policy, he says. Thus began the journey of a first-generation entrepreneur who had a stint with Bain & Co and after that, with deal making platform Groupon, looking after its business in western India. 

Aggarwal chose to go on a sabbatical at Wharton and went on to co-found online home furnishing company FabFurnish, a Rocket Internet-backed company which was subsequently acquired by the Future Group. But his real calling was the budget hotel segment, as India has huge potential, with about only five per cent of the market falling in the organised segment, as compared to the US and China, where 55 and 45 per cent of the segment is branded. 

Looking to tap this market, Aggarwal co-founded FabHotels -- a chain of budget star hotels -- in July 2014 starting with just four properties. He was soon joined by his partner Adarsh Manpuria, an old colleague from Bain & Company, who subsequently joined Rocket Internet as a venture capital associate.

But the duo did not want to end up becoming just yet another aggregator where customer experience, the key for success in the hospitality, lies with the property owners. 

“It is a franchisee model or based on a management contract model wherein we manage the complete operations starting from housekeeping to front office operations,” says Aggarwal, an alumnus from IIT-Guwahati. 

FabHotels typically gets involved with the operations of the properties it manages by deploying its own staff, including the property manager, training them periodically and doing regular audits to make sure that the right experience is delivered to the consumer.

“I started the business with the idea of high returns to the investor and excellent consumer experience for the guest,” says Aggarwal. "Unlike other players, we do not do not do aggregation such as let’s get three rooms in a property and put up a board".

The company today has over 10,000 rooms in its kitty spread across 40 cities with an occupancy rate of 75-80 per cent, even though its has an average tariff of Rs 2,000, which Aggarwal claims is almost twice that of other competitors, including Oyo. 

Why, then, is the company has not been able to come anywhere closer the scale of Oyo, the largest player in the segment that was valued around $5 billion after its September 2018 round of funding and has even forayed to many global markets? Aggarwal doesn’t seem much worried about the competition, as he says isn't a commodity business and over 100 variables need to be taken care of for better customer experience. He has charted his own growth trajectory for FabHotels playing the long-term shot as he feels the one who gets the twin objectives of consumer experience and returns to the hotel operator right will emerge successful. “You cannot keep on scaling this business without focussing on the right experience and rates,” says Aggarwal.

Being a techie himself, Aggarwal is using technology to the extent possible to provide the right experience to consumers, with the help of a 60-member in-house R&D team. The front-end app that helps the guest discover the inventories across 450 properties is completely developed in-house. The company has deployed sensors across properties to detect electrical failures in real-time. For example if a room has a defunct air conditioner, it will be taken care of without any manual intervention.

It also deploys an in-house pricing system that analyses data points every day to optimise the price point for every room. This is done based on location, check-in date, seasonality, and competition benchmarking of the property. 

Initially bootstrapped for almost a year, FabHotels raised its first institutional round of $2.25 million from Accel and Qualcomm in July 2015, and has so far raised over $35 million from the likes of Mohandas Pai, RB Investments and Goldman Sachs. Accel and Goldman holds around 20 per cent each in the company. Interestingly, all its funding rounds were closed in July, though Aggarwal says it may be just a matter of coincidence. 

It’s been seven years since he dropped out from Wharton, and Aggarwal still believes he does not need that ‘insurance policy’ any more as he charts out the next phase of growth of FabHotels.