Budget hotel platform RedDoorz raised USD11m in a series B funding round, which will be used to expand throughout southeast Asia.
The offering had echoes of Oyo Rooms, which operates in India, and which has also bought standardisation to the budget sector.
Amit Saberwal, founder & CEO, RedDoorz, said: “The scale of the Southeast Asia opportunity is mind-boggling. Our aim has always been to tap into Southeast Asia’s USD52bn travel market, which is largely comprised of budget hotels rated three stars or below. We target to go up the value chain and offer the best predictable stay experience for our users across the region.
“With the right team, right set of investors and the right market opportunity, we are certain that we will be able to grow exponentially in this region and drive up our existing 65% customer repeat rate.”
The company currently has more than 500 independent budget properties across Singapore, the Philippines and Indonesia. It recently launched its first leased and operated hotel, a 65-room property in Singapore. The group was targeting 100 leased properties and 1,000 franchised properties in the region in the next 18 months.
The investment followed a USD5m series A round in 2016. The latest round included past investors Asia Investment Fund of Susquehanna International Group, International Finance Corporation, InnoVen Capital and Jungle Ventures and new investors, including Deep Sky Capital, FengHe Group and Hendale Capital.
“We believe that the Southeast Asia consumer empowerment trend is very compelling and that RedDoorz has a tremendous opportunity to aggregate hotel inventory across the region using proprietary technology and business model innovation,” said Geoff Lee, partner at Hendale Capital.
Budget platforms are growing in prominence. The end of last year saw China Lodging agree a USD10m equity investment in Oyo Rooms, a budget platform in India, which gave it a shareholding of 5%. The pair announced a five-year strategic agreement to build “a global market-leading hospitality business”.
Jenny Zhang, CEO, China Lodging Group, said: “The partnership will draw on the strengths of China Lodging Group’s visionary and experienced management team, market leadership through a multi-brand strategy, extensive hotel operations expertise and strong loyalty programme and Oyo’s advanced technologies in the hospitality industry that enable transformation of hotel operations.”
Ritesh Agarwal, founder & CEO, Oyo, said: “Oyo is a new-age technology company disrupting the hospitality industry with category-leading capabilities of using technology to onboard and transform existing supply, standardise operations and distribute these through online and offline channels. Addressing consumers in India and China – two of the world’s fastest-growing markets – through our combined strengths opens up a very large and significant growth opportunity.”
The investment came after Oyo closed USD250m in new funding led by SoftBank’s Vision Fund. It included participation from existing backers Sequoia India, Lightspeed Venture Partners and Greenoaks Capital and new funder Hero Enterprise.
“Oyo has solidified its position in India as the leading accommodation brand for consumer affordability and high quality standards. We’re excited to continue to support Oyo as they further expand their position in India and bring the Oyo promise of affordability and elevated hospitality to other markets around the world,” said SoftBank’s Justin Wilson.
Oyo also announced a move into asset management, a decision it said would “redefine our partnership from with real estate asset owners”.
The company said that it could deliver a 100% increase in revenue in six months, 80% occupancy and 50% corporate consumers. The group added that it could also offer loans for through its “strategic partnerships” with financial institutions, which have so far seen loans made to more than 100 properties.
The company was facing a rising challenge from Treebo Hotels, the India-based budget hotel chain, which has raised USD34m in its latest funding round.
Founded in 2015, Treebo’s franchise model offers its brand name, quality oversight, access to vendors, staff training, and sales and marketing expertise to the property. The company said that it offered “a quality accommodation alternative to India’s USD20bn unorganised and fragmented budget segment”.
HA Perspective [by Katherine Doggrell]: For the global operators, the budget sector in India and southeast Asia smacked of too much risk and not enough reward to get involved. See Premier Inn’s withdrawal for further details. Instead, what could be seen as the latest iteration of the consortium is flourishing, bringing standardisation to a wildly disparate market and utilising the region’s vast technical expertise.
It is not, sadly, as easy as finding a suitable brand and chucking money its way, as Zen Rooms is currently learning. The company, a budget platform with 50 hotels in Southeast Asia, is reported to be looking for a buyer after failing to compete with the other similar offerings in the region. The company has already downsized in Thailand and the words ‘fire sale’ have been bandied around.
The most likely buyer is thought to be Oyo Rooms, which is targeting the region, with Treebo also being named in the local press. The key to success for these platforms is feeding them regularly. With China Lodging behind is, Oyo Rooms’ spate of M&A is unlikely to slow any time soon – and, as the outpouring of travellers from China continues, it has plenty of guests to offer those who would find a home on its platform.