Oravel Stays, which runs Oyo Rooms, an online aggregator of budget hotels, is clocking losses of Rs 46.9 crore per month since January 2016. The business is reporting revenues of Rs 19.2 crore per month.
However, the Softbank Group-funded company, which was started by Ritesh Agarwal as an Indian-version of AirBnB in 2012, is optimistic of turning profitable in 18-24 months after it strengthens its brand.
For this, the company has tweaked its business model last year. “We no longer buy inventory and pay a minimum guarantee to hotels. We reworked our business model last year, where we decided to phase out the inventory we held,” said Abhinav Sinha.
The start-up which has 7,000 real-estate properties on its platform including budget hotels, service apartments, etc, claims to own only 3% inventory. For the remaining 97%, the firm has a revenue share deal with real-estate owners.
Sinha said on an average, the start-up clocks 7-8 lakh bookings per month, with an average ticket size of R1,400-1,500. The company earns a 20% commission on each booking. Of the 8 lakh bookings per month generated by the start-up, only 40% (2.3 lakh) consumers return to the platform for a repeat purchase. Oyo Rooms also has a 20% cancellation rate per month.
The bleed is largely due to the high cost of customer acquisition, besides fixed cost. On an average, the company spends R500 to acquire a new customer. This means the company spends close to R24 crore every month to acquire 4.8 lakh new consumers.
“The upcoming festive season and the run-up to the new year is expected to play a crucial role in terms of generating business. We expect a 50% increase in number of bookings between October and January,” added Sinha.
At the same time, the company aims to add more real estate to its platform. Sinha said every year the company adds 250-500 properties on its platform during the lean period and 500-1,000 properties during the peak season.
The start-up reported a net loss of Rs 351 crore for the April-December period of FY16, as compared to a loss of R20.79 crore for the whole of FY15, which is an increase of 17 times.
Sinha said the company is working towards building a trustworthy brand that will allow it to create a loyal set of customers. “After building a strong brand, we can expect to achieve profitability in the next 18-24 months,” he said.
However, industry observers say the main problem resides in driving repeat purchase from the current 40% to 80% to be able to start earning on every booking.
“In the business of room aggregation, rapid growth from the current levels would require above-the-line (ATL) marketing, which, in turn, increases average cost of customer acquisition. To remain profitable, companies then need to up the average room rate, maintain a minimum 20% commission and ensure increase in repeat business from existing customers,” said Sreedhar Prasad, partner, e-commerce, KPMG.