Hospitality unicorn OYO has announced a commitment of INR 1,400 Cr ($200 Mn) for its India and South Asia business in order to double down on its expansion plans, and improve its back-end technology. The company also reiterated its ambitious plan to be the largest hotel chain in the world by 2023.
“We are committing over INR 1,400 Cr ($200 Mn) for technology investments, renovation, and managing investments for the calendar year, and will provide more, if needed, to help the team ensure continued economically efficient growth,” said Ritesh Agarwal, Founder & Group CEO.
The company also announced the launch of Collection O hotels, adding it to its existing portfolio of the budget- to mid-segment hotel chain brands. As of now, there as 12 hotels under the Collection O offering. Its other offerings include — OYORooms, Townhouse, SilverKey, Capital O, Palette Resorts.
OYO Hotels’ sales run-rate globally at December ended 2018 was at $1.8 Bn – growing at 4.3X – and its India business was growing at 3X with a sales run-rate of $1.2 bn annually.
The company has made it clear that the company will be focusing completely on capacity expansion, and said that it is prepared to invest more than the $200 Mn announced today.
“The company aims to focus on investing and franchise building to take advantage of the global $3.6 Tn accommodation market opportunity rather than chase short-term goals like profitability,” the company said.
OYO currently has 173,000+ rooms spread over 259 cities in India. In recent times, it has also expanded beyond India borders and has operations in 500 cities spread across 10 countries with half a million rooms listed.
With this additional funding, OYO Hotels & Homes furthers its commitment to deliver consistent improvement in customer experience, across its brands. To this Aditya Ghosh, CEO, India & South Asia added, “We believe great quality and repeat customers is the only long-term sustainable investment and hence, each of our brands including OYO hotels, Collection O hotels or OYOTownhouse are key in the years to come. ”
OYO’s STRATEGY 2023
The company is now aggressively pursuing its plan to become the world’s largest hotel chain by 2023 and becoming the dominant hospitality player in India and South Asia.
This is in line with OYO’s strategy to expand and capture as much of the opportunity in existing markets, while also identifying new markets where it can meet the demand-supply gap to make the most impact.
According to the company, it will mainly focus on capacity building and look at opportunities for both organic and inorganic growth as long as it helps us in the company’s mission.
“Over 90 customer-facing campaigns run a month on month in South Asia, and our turnaround time across social media channels is 2.5 minutes. We believe great quality and repeat customers is the only long-term sustainable investment and hence, each of our brands including OYO hotels, Collection O hotels or OYOTownhouse are key in the years to come, ” said Aditya Ghosh, CEO, India & South Asia added.
OYO Looks To Rein In Costs
According to the hospitality unicorn, it continues to improve its economic wing as it claimed to have reduced its losses year-on-year from 44.5% of its total revenue in FY 2016-17 to 20.3% in FY 2017-18.
In the meantime, its operating revenue increased to reach INR 416 Cr (58.1 Mn) in FY 2017-18 as compared 120 Cr ($16.7 Mn) in FY 2016-17. The company also predicted that it is aiming to generate a revenue of almost INR 1,400 Cr ($209.5 Mn) for the current fiscal year.
It also projected a further improvement in the company’s economics of close to 50%, with losses going to down to 10.4%.
Speedbumps Along The Way
While the company has been aggressive with its expansion plans across South Asian markets, OTO’s growth path has not been a smooth one. Since last year the company has been facing troubles with the hotel lobbies in various states. In January, it was reported that the Budget Hotel Association of Mumbai is planning a city-wide boycott from using the OYO services.
The lobby had also formed a pan-India association called the Hotel Association Confederation of India (HACI) with a claimed strength of 8,000 hoteliers in a bid to broker better business terms with OYO.
In the same month, the income tax department had also sent notices to OYO’s parent company Oravel Stays in November and December for the assessment year 2016-2017.
According to a February 2019 report by RedSeer, while the hotel tech space has been gaining a lot of attraction, the space is also showing some initial signs of “turbulence”. According to the report, some of the indicators such as hotel partners complaining of high discounts, business model shift to revenue share rather than minimum guarantees, platform’s growing focus on in-house brand creation for quality and margin control may be the reason behind unrest in this space.