OYO’s meteoric rise in budget hospitality might see early check-out of smaller rivals from market

With the first mover advantage and backing from SoftBank, OYO’s Ritesh Agarwal has ensured OYO remains everyday traveller’s first choice even as smaller rivals like Treebo and FabHotels feel the heat.

The logo of OYO Rooms, operated by Oravel Stays Pvt, is displayed outside a hotel in Ooty, Tamil Nadu, India, on Friday, June 8, 2018. Most Asian markets were in the red on June 18 as concern that the row between U.S. and China may turn into a full-blown trade war. Most Asian markets were in the red on June 18 as concern that the row between U.S. and China may turn into a full-blown trade war. Photographer: Dhiraj Singh/Bloomberg

The online hotel booking has a decent share of the online travel market that has revenues worth $8 billion in 2019. In terms of the value of online hotel bookings, the market will grow to a size of $4 billion in 2020, up from $1.2 billion in 2015, as per statistics portal Statista. And OYO as India’s largest hospitality player contributes significantly here.

Numbers Game

For FY18, OYO India registered a revenue of Rs 416 crore – 3.5X up from Rs 120 crore in FY17 against losses of Rs 360 in FY18 — a marginal increase from Rs 355 crore in the preceding fiscal year. For FY19, OYO expects to grow revenue to Rs 1,500 crore. It is currently the sixth largest hotel chain in the world managing over 20,000 hotels across 24 countries. In fact, it recently became China’s second largest hotel having close to 10,000 hotels on its platform and 450,000 rooms.

This gives a perspective of how OYO has become one of the few global success stories coming out of India in this decade where the business model isn’t ‘inspired’ by any Silicon Valley startups.

OYO has been able to scale at a rapid pace, with no formidable competition in sight. While competition is always healthy for the market and for customers with respect to making choices but with the first mover advantage in the space and the backing from SoftBank, Ritesh Agarwal (OYO founder and CEO) has ensured that OYO remains the go-to option for budget and mid-premium category travellers.

This has also meant a tough battle for incumbent smaller rivals such as Treebo that is vying for a share in this market. Compared to OYO, Treebo — launched in early 2015 in Bengaluru — has over 400 hotels on its platform across more than 75 cities whereas FabHotels, founded in mid-2014, has over 500 hotels in more than 40 cities in India (as mentioned on respective websites).

Moreover, total funding raised by Treebo and FabHotels combined is $92.3 vis-a-vis OYO’s mammoth $1.7 billion funding so far, as per deals tracker Crunchbase. Also, OYO currently has over 176,000 rooms in India while Treebo and FabHotels say to have over 10,000 rooms, as per their websites.

“It is going to be extremely difficult for Treebo or FabHotels to compete with OYO and build a brand against them with the money and aggression they have in the market,” Navneet Nagpal, Principal Consultant and Founder at hospitality consulting firm Spectra Hospitality told Financial Express Online.

Treebo’s FY18 revenue stood at Rs 47 crore up from Rs 20.6 crore in FY17 while its losses increased to Rs 115 crore in FY18 from Rs 73.5 crore in FY17, as per media reports citing data from Tofler. Nonetheless, along with revenue, OYO’s losses are also significantly high than Treebo. Financials for FabHotels weren’t available.

While OYO app installs on the Google Play Store are over 10 million with 4.5 rating, Treebo and FabHotels have over 1 million downloads each while ratings differ — 4.1 and 4.4 for Treebo and FabHotels respectively.

Rough Patch for Treebo

Treebo, which counts SAIF Partners, Matrix Partners, Bertelsmann India Investments, had announced September last year of increasing the hotel count by additional 400 properties (by end 2019) to its then existing 400 hotels, as per a PTI report last year. However, “the company continues to operate on an average about 350 hotels,” an industry source told Financial Express Online. On the other hand, media reports claim Treebo to have around 500 hotels.

Gupta declined to respond to a detailed questionnaire sent seeking his comments. Treebo had also reportedly laid off 70-80 employees from its 800-strong workforce in July last as a result of improving its technology products and processes and drive cost efficiency.

“OYO’s growing foothold in the country has been an issue for Treebo and FabHotels even as it has benefitted our small hoteliers who have been able to invest in capital expenditure. Over 500 hotel franchisees of Treebo, have switched to OYO in the last 11 months,” an OYO spokesperson told Financial Express Online.

However, for Treebo and FabHotels the success “lies in ensuring to hold on to the assets they have and be very aggressive on assets that OYO is not able to retain,” said Nagpal.

Comments from FabHotels will be updated as and when received.

No Way Out?

Treebo had last year in November segregated its three brands to diversify across price points and features. While Treebo Trip operates at Rs 1,000-1,500 price bracket, Treebo Trend offers services between Rs 1,500-2,500. The top sub-brand Treebo Tryst (earlier known as Select and competes with OYO Townhouse) has a price range of Rs 2,500-4,000.

OYO Townhouse “hosts around 1500 guests per property on an average every month,” OYO had said in a statement in April. As of FY18, it had 35 properties in India.

“It is important to see how OYO has aggressively expanded into almost every vertical in hospitality space including homes, regular hotels, coworking, co-living, student accommodation, resorts, etc.. You cannot walk a street in this country without bumping into an OYO. So it is tapping into the bulk opportunity that exits. OYO is today in a position where it could potentially buy out a hospitality company to add more strength,” said Nagpal.

OYO, for instance, is acquiring Amsterdam-based @Leisure Group, a vacation rental company in Europe, which manages holiday homes, holiday parks, and holiday apartments, for $415 million.

“Diversification by virtue of not just doing traditional hotels but vacation rentals is a sensible business strategy for anyone who has the requisite capital. So they want to do all things hospitality,” hospitality consultancy firm Hotelivate Managing Partner Achin Khanna told Financial Express Online.

Nonetheless, Treebo is reportedly in talks with global hotel chain Accor SA (which had written off its $288 million investments in its private rental business Onefinestay and concierge service John Paul, as per US-based travel news portal Skift) for raising around $40 million that would help it expand the business. But will this be viable for Accor given its focus on the luxury segment and Treebo’s challenges to grow against OYO?

“Accor deal will help build credibility to Treebo brand.  With Treebo they are open to exploring the opportunity in this segment and will bring about a certain best practices of the hotel industry into this segment,” said Nagpal.

On the other hand, it won’t be surprising if OYO acquires Treebo or FabHotels to further cement its position or we might see a Treebo-FabHotels merger to take on OYO.

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