Hotelier groups in India have complained that their contracts with Oyo Rooms have meant them suffering deep discounting and high commissions.
The comments came as Oyo saw a USD103m investment from ride-hailing group Grab and made a move into the business travel market.
The Budget Hotel Association of Mumbai told the Economic Times “Oyo has disrupted the entire market drastically. Rooms that we used to sell for Rs 2,000 to 2,500 are now being sold for Rs 800 to 900. Because of funding, they can sell rooms at much lower rates. The minimum guarantee fee is also not coming, so we are not left with a choice.
“Members from Kolkata, Ahmedabad, Mysore, Bengaluru, Hyderabad and New Delhi have joined us and in a few days we will declare the formation of the pan-India association in Mumbai. Oyo is not keeping up with the agreements. In some cases, they are telling our members to change the agreements, else they will not pay them and are asking for new clauses.”
Oyo said: “We have always stood for fairness, whether it is to offer quality living spaces at affordable prices to our customers or the operational capabilities to help asset owners scale to newer heights by leasing or franchising their asset with Oyo. It will be business as usual for us in Mumbai and guest experience will continue to be a priority for us and our asset owners.”
The company has now made a move into the business sector, announcing Oyo B Direct, an extension of its business offering, targeting independent travellers. The start-up’s new offering had a simplified process of generating a GST invoice for hotel bookings and also made it easy for employees to claim travel reimbursements from their office.
The group said: “The idea of Oyo B Direct is to bring Oyo B to every corporate traveller. It is primarily aimed at employees of organisations, where the company is not involved in setting up travel partners and authorises a traveller to make bookings and claim reimbursements according to company policies. This especially empowers independent corporate travellers and business travellers, who do not often have dedicated resources to manage company travel.”
Adding the potential for further options to the corporate traveller, Grab spent ISD103m on a stake in Oyo, as part of the SoftBank Vision Fund-backed Oyo’s series E equity financing round, which saw the platform raise USD1bn dwarfing last year’s USD10m invested in the group by Huazhu as it expanded into China.
SoftBank had a 45% stake in the platform, with the other stakeholders including Lightspeed Venture Partners (15%), Sequoia Capital India (11%) and Huazhu (5%). Founder Ritesh Agarwal holds 11%.
Masayoshi Son, founder, chairman & CEO, SoftBank, described his enthusiasm for Oyo to analysts on the group’s Q1 earnings call in August, commenting: “This is a next-generation type of hotel management, Oyo.
“In just two years, it grew the number of rooms in India to 100,000. By the end of the year, I would say 150,000 more rooms or maybe 200,000 rooms, which will be 10 times more than Taj group’s rooms. It’s completely a new type of hotel and they are growing so fast.”
Oyo followed the investment by announcing growth into the UK was that the company would use a franchise model to expand, offering redesign, property management and marketing. Oyo has expanded its model since launching as a platform in 2013, most-recently launching an asset-management arm.
Ritesh Agarwal, founder & CEO, Oyo, said: “The UK has been the topmost international travel destination for several years and last year hosted over 19 million tourists from around the world. Driven by its booming domestic and international travel and budget hospitality needs, the UK presents a multi-billion dollar opportunity for Oyo. We are thrilled to now be able to offer Oyo’s affordable, hassle-free and quality living experiences to guests across the UK – and to be empowering the UK independent hoteliers with the technology and operational expertise that helps them focus on customer experience and thereby generate increased, sustainable incomes.”
The company told the local press that it expected to be the largest hotel company in the world by 2023, should it continue its current opening pace of 50,000 rooms per month.
HA Perspective [by Katherine Doggrell]: If you are going to build your hotel company around the idea of a platform made up of independent hotels, best to make sure those independent hotels aren’t too peeved. It is reasonably unlikely that, just because you want to build up a volume business, the businesses which you need to grow are going to sacrifice their own revenue to drive yours. Unless you’re related, and even then, only for a while.
So Oyo may have a bit of PR-ing to do to make its case to those hotels which might be looking at the comments of The Budget Hotel Association of Mumbai and considering that other platforms may well be available. Those 50,000 rooms per month might find themselves in jeopardy.
The comments made by the hotel association echoed those made at Expedia’s Explore ’18 event, when delegates were told that, when it came to Airbnb, it was able to distort the market, pushing down rates because it had so much cash in the coffers. These nimble platforms bring much to the market, but also need to note that their suppliers have feelings and businesses too. And feet.
Additional comment [by Andrew Sangster]: What exactly is Oyo? Its recent USD1bn of fundraising was done at a price that put a USD5bn valuation on a company which started life as an online travel agent five years ago.
Today, Oyo has morphed into something that more closely resembles a “legacy” hotel brand company. Why did it change and what is it now trying to become?
Listening to founder Ritesh Agarwal it appears to be opportunistic. He believes that the long tail of hotel assets in different jurisdictions offer the chance to create a hotel offer that delivers for guests and asset owners.
The problem is that it sounds pretty much the same story as that told by the “legacy” hotel brands. Only in their case, they started as hotel brand companies and have struggled to become competitive in the distribution space.
There is no question that Oyo has an effective distribution platform in India. With 147,000 rooms under its flags it is nearly 10 times of the next biggest hotel brand in the country, Taj Hotels. Oyo has double the number of rooms under its flags compared to all of the other leading brands in India put together.
In China, where Oyo has a second base of operations which it describes as a “second home market”, it is fifth in the ranking of hotel chains with 129,000 room. This though is after just one year of operations in that country. Market leader in China is Jin Jiang which tops 600,000 rooms.
Does the fact that Oyo started as an OTA and is now trying to become a hotel brand company give it an edge over the companies doing it the other way round? The answer is a clear yes in markets where the OTA is established – in India – but maybe not so clear cut in markets where Oyo as an OTA has little traction.