OYO competitor FabHotels sees hotels checking out; management calls hotels’ claims baseless

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Updated: February 26, 2020 1:34:51 PM

The development comes amid the CCI granting impleadment request to FabHotels in FHRAI’s complaint against OYO and MakeMyTrip for allegedly using their dominant position to destroy competitive pricing in the market.

FabHotels claimed to have over 600 hotels with over 10,000 rooms on its platform across over 50 cities. (Image: fabhotels.com)

Goldman Sachs and Qualcomm-backed budget hotel startup FabHotels, which competes with OYO and Treebo, is now allegedly facing flak from hotels on its platform over non-payment issues. Around two-third of hotels partnered with FabHotels in Mumbai have checked-out from the platform in the past few months, according to the complaints received by the Budget Hotel Association of Mumbai (BHAM). However, the Gurugram-based startup, launched in 2014 and claimed to have over 600 hotels with over 10,000 rooms on its platform across over 50 cities, has outrightly rejected the claims calling them false and baseless.

“There are around 30 FabHotels in Mumbai out of which around 20 have exited. This is related to the minimum guarantee amount that FabHotels promised but didn’t pay,” said Ashraf Ali, President, BHAM told Financial Express Online. Azharuddin SV who owns two hotels in Mumbai said he left FabHotels in 2018 and 2019 as the company failed to pay the minimum guarantee. “I worked with them (FabHotels) from February 2016 to May 2019. Initially, everything was smooth but in 2018 they renegotiated the agreement reasoning my hotel not doing well. I agreed for that time but they again asked for this and held my money which was Rs 12.5 lakh. This happened again for my second property for which they didn’t pay Rs 10 lakh in guarantee amount,” he said. 

Another hotel owner Abdul Salam in Mumbai had 12 hotels earlier but he withdrew eight of them due to payment issues. “In the existing 4 hotels, I have around Rs 7.5 lakh stuck,” he told Financial Express Online. Refuting BHAM’s claims, FabHotels Founder and CEO Vaibhav Aggarwal said, “BHA of Mumbai is an association of illegal guest houses, and we avoid working with such properties. Ashraf Ali runs a property with Treebo, and his son works at Treebo in professional capacity as a sales associate. While Azharuddin SV quoted in the article runs properties with Ashraf Ali’s younger brother, Rashid. This is just an attempt to malign and defame the company by the competition.”

Aggarwal added that Salam never had 12 properties with FabHotels. “In fact, we have an FIR against this person for behaving in an untoward manner against one of our employees. Charge-sheet has also been filed by the police and this matter is under investigation,” he said.

The development comes amid the Competition Commission of India (CCI) granting impleadment request to FabHotels in Federation of Hotel and Restaurant Associations of India (FHRAI)’s complaint against OYO and MakeMyTrip for allegedly using their dominant position to destroy competitive pricing in the market. According to an FHRAI release, Fab Hotels had last month filed an application for impleadment reasoning that it is important in “public interest” for the company to become part of the matter.

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“If I lose 20 out of 30 businesses, I would have to shut down the business. I would reiterate that this information is completely baseless and outright false, and driven by vested interests.” Aggarwal added that “BHAM’s head Ali has properties with a particular competing player, and appears to be acting in-sync to defame and malign us.”

FabHotels was founded in 2014, a year after OYO was launched by Ritesh Agarwal and a  year before Treebo was founded by Sidharth Gupta, Rahul Chaudhary, and Kadam Jeet Singh. Treebo currently has over 12,000 rooms in more than 600 cities in over 100 cities, as per its website. However, OYO has been the biggest player in India and globally capturing the vast untapped budget accommodations market. 

Aggarwal said that out of its 43 franchise hotel partners in Mumbai, only nine partners with any sort of minimum guarantees have left FabHotels in the last two years. Among these nine hotels, “only one-third left due to contractual disputes, while other two-third were removed due to property changing hands or compliance issues with the property,” he said.

While FHRAI admitted that there have been some issues around the company but the size of the problem isn’t significant. The association’s joint honorary secretary Pradeep Shetty told Financial Express Online that there were some cases of lapses but not significant. “As we check-up with our members, there is nothing very serious that is happening,” said Shetty without specifically disclosing about the said lapses.

The hotel partners of FabHotels in Mumbai to whom Financial Express Online reached out claimed high occupancy levels. Satish Naik who runs Hotel Sahar Garden in Andheri East in Mumbai said “there were few times when group bookings got cancelled after confirmation but that’s the only complaint we have. In terms of occupancy rate, we get 80-90 per cent.” Another hotelier Abbas who has listed three properties in the city on FabHotels said while the occupancy level has gone down from 100 per cent to around 80 per cent but he hasn’t faced problems around payments.

This story was updated with FabHotels Founder and CEO Vaibhav Aggarwal’s additional comments.

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