 "Ritesh Agarwal")
The USP of Oyo Rooms, the online hotel aggregator led by 23-year-old Ritesh Agarwal, has been its low tariff. That however was also a hurdle for the company, backed by marquee investors such as Softbank, Sequoia, Lightspeed Venture Partners, Greenoaks Capital and others, in turning in profits. Analysts have maintained that Oyo must raise the tariff to become a unicorn and also profitable. Agarwal has heard them, and is now trying to strike a balance.
In the backdrop of funds marking down their investments in top-notch start-ups, Oyo being no exception, Agarwal is keen to tap high-value travellers for its premium services, a category which is expected to fetch higher returns than the regular rooms.
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So far, Oyo hard-sold a list of musts in the hotel rooms booked through its platform. These included clean washrooms, Wi-Fi, air-conditioned rooms, and complimentary breakfast, the tariff for which was capped at Rs 2,500. Among others, many hotels with which Oyo has partnered argue that this tariff is fine during the lean season but not when tourists show up in large numbers during holidays.
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This is where Oyo's premium services fit in. The country's largest hotel aggregator has brought on board boutique hotels and service apartments to vie for the market share of three- and four-star hotels, a segment that is growing at a fast clip in India.
The new category is called Oyo Flagship and will be targeted at those who are willing to stretch their budget for more than just the basic comforts of clean sheets and a hot shower. Oyo plans to take some of these properties on lease and some on a revenue-share model.
"We want to offer an upmarket customer service to discerning guests who are looking for a value experience," says Agarwal.
In three years since its launch in 2013, Oyo has grown to become the largest branded hotel aggregator in India, operating through a network of 5,500 hotels in over 170 Indian cities. With an inventory of over 63,000 rooms, Oyo has recorded a million check-ins over the past year.
Currently, Oyo provides basic rooms under the Oyo Rooms brand and a slightly higher category through Oyo Premier. That's not enough, Oyo realises.
The new business will serve people who are increasingly drawn to Oyo but whose needs currently are not met by the services provided by it. "The brand looked good and a very different set of people started using Oyo and they expected more from us," says Agarwal.
Rising competition
Operating in this segment, however, will not be without challenges. Unlike the mass market category which is largely unorganised, many well-entrenched hotel chains are keen to grow their three- and four-star networks. In addition, several large chains that traditionally operated five-star hotels too are keen on expanding in the economy or budget category. French hospitality major Accor, for instance, is expanding its low-cost budget hotel chain Formule1. Similarly, Intercontinental Hotel Group is expanding the Holiday Inn Express, its budget arm.
For customers in this segment, there are plenty of options to choose from. Also, given the nature of the hospitality industry, Oyo will have to be extra careful in ensuring a uniform level of service across its hotel rooms. In the past, as it expanded its business rapidly, its quality did get compromised, resulting in several unsatisfied customers. The company has delisted 51 hotels this year from its network. Another 123 hotels from where complaints had come were put on one month's notice during which they were not allowed to take fresh Oyo bookings but only serve the earlier bookings.
"Based on their performance and service, we are allowing them to restart the bookings. We now have stricter clauses for them. If more than a couple of bad experiences come from a hotel, we will take them off our network," says Agarwal.
Going slow
So far Oyo has been moving carefully in its new business. It has launched Oyo Flagship on a pilot basis in a few markets, including Delhi, Noida and Gurgaon. "We are not looking to scale up the Flagship segment immediately. It is a pilot. I am personally going to stay at almost every Flagship to ensure the quality," says Agarwal.
Oyo Flagship has a different business model than Oyo Rooms or Oyo Premier. At present, it blocks a certain percentage of rooms with a hotel and offers them under the Oyo platform. In the new business, the hotels will cater exclusively to Oyo.
Another key difference will be the extent of control that Oyo will have on the hotels under its Flagship brand. Since such properties will cater exclusively to Oyo, the company can work towards ensuring a uniform experience across such properties. "These properties will have better interiors and staff. There will be investments to ensure that the infrastructure is good and staff is well-trained. There will be a fixed cost that we will bear but there will be greater control over the quality it will offer," he says.
Another challenge before Oyo is the steep discounting that has prevailed in the online travel booking space for a while. Flush with funds, travel portals like MakeMyTrip and Ibibo are offering discounts of up to 90 per cent on hotel bookings. In effect, you may end up getting a room priced at Rs 3,500 to Rs 4,000 for as low as Rs 1,500, including the taxes.
Agarwal is unhappy but is not worried. "There should not be such steep discounting. We can choose to discount our rooms in specific hotels or cities where aggression is required. We will deliver a better experience at attractive price points."
By diversifying its portfolio of rooms and tariffs, Oyo is perhaps readying for the next round of funding and a good valuation tag. Till a few months ago, it was believed to be eyeing a valuation of around $600 million, not too far away from being a unicorn.
