FINDING A hygienic hotel room at a decent price had always been a predicament for Mrinal Joshi, a young marketing professional from Dehradun, who often had to travel across the country on work assignments. Being a Net-savvy individual, he could always avail of the services of a hotel or a travel agency website, but could never be sure about the quality of the rooms booked through these portals.
But not any more, thanks to a slew of online budget accommodation brands and aggregators that are changing the very dynamics of the hospitality space. What Joshi gets as part of the deal are cleaner rooms and washrooms, besides free Wi-Fi and breakfasts that are ‘standardised’ across a company’s properties. So whether he visits Delhi or Ranchi, Mumbai or Kochi, Joshi can expect the same level of quality and refinement in the rooms that he puts up in, and that, too, at cheaper rates.
“Indian travellers are increasingly opting for short trips of two-three days’ durations, but getting reasonably-priced accommodation in cities was becoming a big challenge. Also, many people have had bad experiences with budget accommodations in the past in terms of hygiene, quality of services, etc. This is when budget hotel aggregators emerged as a popular option for travellers. Even during my travel for business purposes earlier, I would end up paying a high amount for a hotel room and yet not get a satisfactory experience,” says Prafulla Mathur, founder and CEO of WudStay, a budget accommodation aggregator that opened its doors to the public on June 1 this year.
With its presence in just two cities—Gurgaon and Jaipur—and tie-ups with 15 hotels, the online marketplace for budget accommodation has expanded to 30 cities and tied up with over 300 hotels across India in just a little over three months. WudStay raised $3 million from venture capital firm Mangrove Capital Partners and mobile messenger app Nimbuzz’s Vikas Saxena during its first round of funding.
In fact, funding has never been in short supply for this space. OYO Rooms leads the race after having raised $100 million from Japan’s SoftBank, a multinational telecommunications and Internet corporation, in July this year. Prior to this, the company had raised $25 million from venture capital firms Lightspeed Ventures and Sequoia Capital, and investment firms Greenoaks Capital and DSG Consumer Partners in March.
“Traditionally, when booking a room at a budget hotel, customers would remain clueless—as to what they would get—till the time they would enter their hotel room. The key driving factor behind OYO Rooms was to solve this problem of trust deficiency by standardising the unorganised hospitality sector,” says Kavikrut, chief growth officer of OYO Rooms.
In August, budget accommodation aggregator ZO Rooms reportedly raised fresh funding of $30 million (around Rs 192 crore) from investment firm Tiger Global Management and venture fund Orios Venture Partners after it closed an undisclosed amount (some reports peg it at $5 million) from the same investors in July. “Budget hotels have always been around, but the category was not unified by any standard norms, rules or service guarantees, which hotels could follow unanimously. Consumers could never rely or become comfortable with booking hotels in the budget category because of the ambiguity around the services offered. ZO Rooms partners with hotels across India and standardises them to ensure customers get the same kind of superior quality and comfort across all its properties,” says Dharamveer Chouhan, its CEO and co-founder.
Currently, ZO Rooms has more than 700 hotels and 7,500 rooms across 45 cities in India. It is looking at creating a presence of 7,500 hotels and 60,000 rooms across the country by 2016.
Catalyst for growth
The emergence of this concept over the past few months highlights the massive potential that exists within the hotel space in India. As per a recent report compiled by Google India and based on a research conducted by market research firm TNS, an estimated 8.4 million Indians are likely to book hotels online by 2016—up from 3.5 million in 2014. The online hotel booking industry is estimated to be worth $1.8 billion (R11,226 crore) in 2016 from the current $0.8 billion (Rs 4,989 crore), the report noted.
The report also found that budget accommodation is the most popular with users in India, with 49% users booking budget hotels, 32% users going for economy hotels and 19% users booking luxury hotels. “The hotel industry has forever been an unorganised one. There are more than a million hotel rooms in India, but more than 95% of them are in the unorganised sector. Hence the value of an organised player coming in and bringing about a sense of professionalism to the industry can be huge,” says Sidharth Gupta, co-founder of Treebo Hotels, a tech-enabled, asset-light affordable accommodation brand offering based in Bengaluru.
In June, Treebo raised $6 million from private equity investment firm Matrix Partners India and venture capital firm SAIF Partners. Last month, it expanded its services to Mumbai, Delhi and Jaipur. “We are currently selling 300 rooms every day. By the end of this fiscal, we will be present in over 20 cities with an inventory of more than 3,500 rooms,” adds Gupta, a former Myntra executive, who joined hands with his IIT-Roorkee friends Rahul Chaudhary and Kadam Jeet Jain to start Treebo in March this year.
Ankita Sheth, co-founder and head of partnerships, Vista Rooms, shares similar views: “There is tremendous scope for standardisation and innovation in the budget stay industry. With over one lakh accommodations requiring standardisation, there is massive potential to redefine customer stay experiences by leveraging technology.”
Mumbai-based Vista Rooms is spreading its network in India’s tier-II and -III cities, where, it feels, there is a major need for standardised accommodation. “The company understands that there is a lack of trust and faith among customers while traveling to these smaller cities of India, so it is focusing on ensuring a service that retains its quality and faith for customers,” offers Sheth, former head of acquisitions at OYO Rooms, who joined hands with Amit Damani and Pranav Maheshwari to launch Vista Rooms in April this year.
From just two cities, Vista Rooms has scaled up rapidly to 55 cities in a period of just two months. It recently closed a Series A round of funding from a group of veteran investors.
But how do the customers benefit from it all? “Travellers benefit due to fair and transparent pricing, personalised services (we have a dedicated relationship manager who takes care of a guest’s stay and is available 24×7 to address any queries), credit-card swipe facility, search options of nearest rooms that are available at competitive pricing, ‘pay at hotel’ facility and paper-less billing, among others,” says Pradeep Sajjan, CEO and co-founder of Room On Call (ROC), a Gurgaon-based branded budget accommodation marketplace that recently secured $300,000 in angel funding led by Payal Syal, a US-based senior executive at Yahoo.
“ROC is basically a platform that caters to the entire mobile population of the country and makes travelling quite comfortable irrespective of late-night landing of flight, delayed trains or last-minute reservations,” explains Sajjan. Starting with just two properties this year, ROC has scaled up to 225 properties, with more than 4,500 room bookings every day as of now.
Staying power
** 8.4 million Indians are likely to book hotels online by 2016—up from 3.5 million in 2014
** $1.8 billion (Rs 11,226 crore) is how much the Indian online hotel booking industry is estimated to be worth in 2016, from the current $0.8 billion (Rs 4,989 crore)
** Budget accommodation is the most popular with users in India, with 49% users booking budget hotels, 32% users going for economy hotels and 19% users booking luxury hotels
Source: A Google India-TNS report
Managed marketplace
Chennai-based Stayzilla, which focuses only on ‘stays’ with 35,000 properties across over 4,000 cities in India, has been providing a diverse variety of stay options to its customers since its inception in 2010—at a time when there were hardly any players in the segment and Internet penetration was also low. “We personally went and met hotel owners in tier-II and -III cities and towns across the country and convinced them to sell their room nights online through Stayzilla. Most hotel owners were not aware of computers at that time and bringing them online was the biggest challenge we had to face,” says Yogendra Vasupal, CEO and co-founder of Stayzilla.
The company, being the first to transform itself from an online travel agency to a marketplace in the accommodation space, has now pioneered yet another initiative—the concept of alternative stays in the country, with a significant number of first-time hosts already registered with them. “With the launch of the new mobile app and brand campaign, Stayzilla will enable hosts to open up their vacant rooms faster, thereby giving a huge push to the
alternative stay segment in India,” explains Vasupal.
Another start-up that wanted to create a segment far superior than guesthouses found near railway or bus stations is
The Hosteller, which is propagating a new kind of ‘hostel’ in India. Its hostels, with dormitory-style rooms, are all about offering a happy medium between budget hotels and couch surfing. “While offering all basic amenities like air-conditioning, Wi-Fi, breakfast, female-only room options and lockers at minimal prices (beds starting at Rs 350 a night), our design-focused hostels are more about building the perfect ambience for communal living and social travelling. Our open common areas like the library and workspace, shared kitchen, lounge and gaming areas, open balconies and services like 24-hour travel desk facilitate a lot of interactions among travellers, making it the perfect meeting point,” says its co-founder Pranav Dangi.
The Hosteller’s business model is based on leased properties that are completely refurbished and designed as per the culture, history and theme of that particular location. “The extremely important and detailed process of transforming a leased property, as per the benchmarks of The Hosteller brand, takes approximately 45-60 days,” Dangi explains. Since its inception in December last year, The Hosteller has successfully catered to over 2,000 backpackers from more than 35 countries, he adds.
The way forward
Although the market opportunity is huge, industry observers feel it is important for players to focus on solving the right problem: the quality. “Our focus is not just on expanding our footprint, but doing so while delivering a great experience. Our involvement doesn’t end at selling the hotel’s rooms online. Rather, that’s where it begins. We also get closely involved in staff training, property upgrade, quality audits, etc, to ensure that the guest has a delightful experience. This, we believe, will be the biggest differentiator that will help us build a sustainable and truly value-creating franchise,” says Gupta of Treebo Hotels.
Sheth of Vista Rooms sees customers benefiting tremendously in the near future. “There will be trust among customers that even if they travel on a budget, they will receive a standardised experience irrespective of the time and location of travel,” she says, adding, “We want to offer 5,000 Vista quality-approved rooms to our customers across all locations in India by the end of this year.”
In future, through its tech-based initiatives, OYO Rooms hopes to provide stay experiences where one doesn’t have to show one’s ID while entering or checking out, “as these are things one doesn’t do at one’s house”, offers Kavikrut of OYO Rooms.
“We want to provide the convenience of staying at home with the luxury, service and comfort of staying at a hotel. As for expansion, in the next few years, we want OYO to be present everywhere in India and to be present in every corner of every big city,” he adds.