OYO’s Ritesh Agarwal says overtaking Marriott only the beginning even as market expert doubts growth

Softbank-backed OYO’s vision to become the largest hotel chain globally by surpassing Marriott by 2023 dwarfs the monumental growth it had in India and China in around six years.

OYO’s Ritesh Agarwal says overtaking Marriott only the beginning even as market expert doubts growth

From just a hotel aggregator in 2013 to the world’s seventh largest hotel chain in 2019, OYO’s rise has been monumental. Now its vision to become the largest hotel chain globally in the next four years dwarfs even that monumental growth. This would mean overtaking the existing leader in the hotel business globally — Marriott that manages 1.29 million rooms across the world. But come 2023, becoming the global leader would only be the beginning.

“I believe it (overtaking Marriott) will come sooner,” Nikkei Asian Review quoted OYO’s Founder and CEO Ritesh Agarwal during the launch of its apartment rental service — OYO Life in Japan on Thursday.

“But I think our mission is far greater. It’s the beginning of a much bigger journey,” Agarwal said. OYO currently manages 515,000 rooms globally.

Retaining Stickiness

Market expert, however, points out towards the continuous stream of capital that OYO, much like most of the technology startups, needs to fuel its global ambitions. Hence, there is a need for core competency to develop.

“Marriott operates in low to the high-end market. While OYO’s business model is scalable but it is not unique and doesn’t have a core competency. Any company can get investor funding and do the same. It is similar to what Uber started with then Ola, Didi and many others did,” Neil Shah, Partner, Counterpoint Research told Financial Express Online.

However, OYO said that instead of optimising properties through aggregation (a model followed by cab-hailing companies), it is a global hotel chain much like existing large chains such as Marriott that works on leasing and franchising properties.

“OYO Hotels is a full-fledged hotel chain, enabled by technology. We are not a hotel room aggregator or an online travel agency or a  marketplace. Additionally, we have invested heavily in capital expenditure, created job opportunities for over 100,000 people in India and set up over 22 training institutes for hospitality enthusiasts across India,” said an OYO spokesperson.

The company claimed of 20-30 per cent in occupancy on an average for more than 75 per cent of hotel owners associated with it.

OYO currently serves budget to mid-scale segment across its over six brands including OYO Townhouse, OYO Home, Capital O etc. It also manages “day-to-day operations and guest check-in/checkout fulfilment, and home infrastructure,” OYO’s Chief Growth Officer Kavikrut had told Financial Express Online.

Shah, further, points towards the brand stickiness that might go away in absence of capital. “If OYO runs out of money then there has to be some stickiness to scale. If they don’t and some other player with investor money comes up with a better stickiness model then it can compete with OYO. So, OYO’s growth on one end is a valuation game from investors and on the other end announcing their vision to become larger than Marriott is to get more investors,” he said.

OYO currently works on a full-stack fulfillment model where it acquire properties, renovate them, manage them through technology along with omnichannel distribution strategy. This model, said company, is where its core competency and stickiness lies.

“We are using technology extensively to sustain and increase the quality of operations while reducing the cost. At present, we have multiple app-based solutions for our customers, employees and asset partners in addition to OYO OS, the operating system for every OYO hotel,” the spokesperson said. OYO has seen a 4.3X year-over-year growth in business with realised value annualised run-rate of $1.8 billion.

The Airbnb Angle

There is also the Airbnb angle to OYO’s growth as the former is also reportedly in talks to invest in OYO.

“If Airbnb’s successfully invests in OYO then we will have to see if it later acquires OYO and remain a global monopoly in budget accommodation market or continues as it is with OYO growing in emerging markets and Airbnb in non-emerging ones,” said Shah.

However, OYO has denied any competition from Airbnb. “There are three main components to the OYO home business model… Airbnb is only the first of these three — a successful platform that lets hosts lists their homes and guests discover and book them,” Kavikrut said.

“In this regard, they are a potential partner to us,” he added as OYO is building all the three layers of the business, which is necessary to unlock homes in a market like India.

OYO launched OYO Life following its joint venture (JV) with Yahoo Japan Corporation in February this year targetting students and young professionals. The company appointed Japanese entrepreneur and former Japan market leader for Handy and, Hiro Katsuse, as CEO of the JV company.

“OYO is already the most preferred brand in the budget to mid-segment hospitality space in several markets like India and China, where our operational expertise in identifying, transforming and managing properties has helped us gain significant momentum, and we are certain that we will deliver great value in the Japanese market,” Agarwal told during the JV last month.

For homeowners in Japan, OYO will manage the property on their behalf along with guaranteed rental income. “OYO’s best in class real estate property management system helps owners improve their occupancy and yield, combined with Yahoo’s marketing and distribution network to attract more customers,” the company said.

With the launch in Japan, OYO is now present in 10 countries.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 31-03-2019 at 18:39 IST