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Will Oyo Bubble Burst In 2020 As ‘Toxic’ Culture Comes To Light?

Will Oyo Bubble Burst In 2020 As ‘Toxic’ Culture Comes To Light?

A New York Times report showed Oyo rents rooms for free to police officials to avoid troubles

It said thousands of the rooms are from unlicensed hotels and guesthouses

NYT report cites Oyo former employee who said that the work culture is "toxic"

Japanese conglomerate SoftBank has barely come out of 2019 sporting a black eye after coworking space provider WeWork’s failed investment. However, 2020 didn’t start on a good note either as it is now facing major questions for its investment in Indian hospitality unicorn Oyo. Multiple experts have argued that Oyo’s business model resembles WeWork’s as a tech-inflected real estate business that has expanded far beyond its initial concept.

Over the last year, we have reported several times about Oyo’s unpaid dues to hoteliers, protests against the company and police complaints. The latest report by the New York Times has now reported that former employees have alleged a “toxic” work culture. At the same time, several other hoteliers, former and current employees have reportedly alleged that Oyo offers rooms from unavailable hotels, etc.

The report has further highlighted that thousands of rooms are from unlicensed hotels and guesthouses. They said that to avoid trouble, Oyo sometimes gives free lodging to the police and other officials.

Further, the report also cited an old case of June 2019 where a female Oyo guest reported an incident of rape to the company but was requested not to file a police complaint. Allegedly, Oyo legal team had suggested to dial down the case as it would “hurt the company’s image”.

“It’s a bubble that will burst,” reportedly said Saurabh Mukhopadhyay, a former Oyo operations manager in northern India who left the company in September. Further, the report cited current and former workers saying that Oyo was never an easy place to work but that pressure increased over the last year.

Another employee said, “The culture is really very toxic.” This employee reportedly alleged that employees were under so much pressure to add new rooms that they brought hotels online that lacked air-conditioning, water heaters or electricity.

Oyo has been the star of India’s startup ecosystem, having raised over $2.5 Bn in funding from investors such as SoftBank, Lightspeed, Sequoia Capital, etc. The company has rapidly grown its presence across the globe and has a portfolio of more than 35,000 hotels and 125,000 vacation homes, and over 1.2 Mn rooms across 80 countries and 800 cities. Its verticals vary from holiday homes, casino hotel and coworking spaces to budget hotels, corporate stays and more.

The company’s financial performance has been under the scanner too. According to its valuation report filed with the ministry of corporate affairs, the company saw its operational revenue grow to INR 6456.9 Cr in FY19, a jump of 3.56X from INR 1413 Cr in FY18. At the same time, OYO’s operational expenses were INR 6131.65 Cr in FY19, a 3.9X increase from INR 1246.8 Cr in FY18.

OYO as a group aims to turn profitable in 2022. The company is expecting $285.9 Mn in losses for 2020 but aims to turn a profit of $45.2 Mn in 2022. Now the question remains if it will be able to do that after stretching itself too thin for the growth?

Update: January 4, 2020| 3: 20 PM

After the story was published, an Oyo spokesperson told Inc42, “We are committed to growing OYO the right way — by meeting the needs of property owners and of the guests we serve together. We work hard every day to ensure that our values are upheld by thousands of committed employees around the world, and we are subject to regular external audits to ensure proper compliance and adherence to our Code of Conduct. With regards to complaints of a small section of property owners in India whose payments are disputed, multiple escalation mechanisms exist and we continue to provide resolution. We are also investing in technology and in building stronger partner support teams to ensure reconciliations happen faster. We expect all hotel owners to partner in delivering superior guest experience. We will also continue to utilize the provisions in our contracts that allow us to incentivise and recognise thousands of owners who consistently deliver a high-quality guest experience.”