“The true test of a champion is not whether he can triumph, but whether he can overcome obstacles”- Garth Stein
It was August 2015 when OYO Rooms, the Gurugram-based budget hotel aggregator, raised a $100 Mn round and industry veterans became sceptics. While this led to the spawning of more ‘me-too’ models and a brawl in the hospitality industry, it questioned the viability of the business model too.
Far away from this chaos, were three musketeers in Silicon Valley of India, Bengaluru, engrossed in finding a solution to the core problem – the poor quality of budget hotels in the country. When we talk about budget hotels with a price band between INR 1,000- INR 3,000, chances are, the bedsheets will have stains on them, the towels will be worn out, the staff will be rude, the bathroom will be smelly and unclean, and even worse, the place may not even be safe.
Sidharth Gupta, Rahul Chaudhary and Kadam Jeet Jain , after a successful stint in companies like McKinsey and Myntra, took charge to provide budget travellers the best value for money with Treebo Hotels.
As Sidharth says,
“All three of us are from middle-income families. And these are the anxieties that we had personally experienced on multiple occasions during our travels. And it didn’t make sense. We wondered, when in so many other unorganised consumer sectors – food, fashion, electronics – emergence of an organised brand had offered the customer a sense of surety about the quality of product even at lower price bands, why should the same not be true for budget hotels? With this thought in mind, we started Treebo Hotels with the mission of providing a budget-traveller the best value for money by building India’s first budget hotel brand.”
Launched in June 2015, the startup is targeting a $20 Bn hotel market, with 1.25 Mn hotel rooms in the country of which 70% are in the budget segment. The startup has raised $23 Mn funding so far and is backed by investors such as Matrix Partners India, SAIF Partners and Bertelsmann India Investments (BII).
200 Properties, 5200 Keys In 40 Cities, And Counting
In a short span of 16 months, Treebo Hotels claims to have generated a network of 200+ properties and 5,200 keys in 40 cities to become the third-largest Indian hotel chain after Taj and ITC. The founders also boast of being a well-appreciated hotel brand with an average rating on booking.com – a portal for verified guest reviews – of 7.44/10.00, which is higher than that of Ginger, Ibis, and LemonTree.
The Treebo team registers some industry firsts too. This includes the launch of ‘Friends of Treebo’ – a crowdsourced mystery-audit programme to help get independent feedback on the quality of properties, in December 2015. Bumblebee – the first ever stand-alone tablet-based property management system to efficiently manage hotel operations and reduce one/sixth check-in/check-out time for the guests in June 2016. And Treebo Hangouts – to organise fun evening activities for the guests staying at Treebo properties.
Also, the founding trio claims to run a high occupancy rate of 75% to 80%, in contrast to the earlier 30-35% rate of most budget hotels, a repeat rate of 40% for retail customers, and 80% for corporate customers.
The Differentiator: Building A Sustainable Brand With Franchise Based Model
Treebo Hotels works on a technology-enabled and franchise-based model. Here, the founders do not own hotels but properties that are under its brand provide a certain value proposition to customers. While coming up with a sustainable solution, the founders were very clear that they were here to build a brand and not an aggregator or a marketplace or an OTA. And, this will take time.
“After all businesses are supposed to be built on laws of physics and not on laws of capital,” Sidharth says with a smirk.
He further adds, “It’s not important that in the first year only we become the most visible player, because when that happens it shows that something fishy is going on. For us, more important is to spend our money in the right way. We are also focussing on unit economics along with scale and sustainable business building, so you will not find us spending crores and crores of funds in marketing. I believe, 2015 was the year of flamboyance and it was all about shouting from the rooftop – Hey, I am here to change the world. However, 2016 is the year of hard work and honesty wherein you can build a company only in an honest and sustainable way, rather than making tall claims and throwing money at solving long-term problems.”
Tech Innovation, On Ground Process Discipline, And DNA Of Guest Service: Treebo’s Core Principles
As shared by Rahul, Treebo is a digital hotel, where the team works with a mind of an engineer and the heart of an hotelier. The kind of quality challenges one faces and the scale at which one needs to do it, make it extremely hard to build a hotel chain in a conventional way. While five-star properties can appoint an army of expensive people to avail good guest experience, in a budget hotel it’s a big no. Technology is thus their saviour here.
For instance, on the B2B side, technology has been utilised to combat the problem of failing WiFi. As Rahul explains, “Typically in these low budget hotels, Internet connection tends to be fairly unreliable sometimes, because of both hardware and input reason. To combat this, we have installed devices on the routers at our properties to get updates on the current status of network. So, while sitting in Bengaluru, I can see live on a dashboard where the Internet tends to go down and get preventive action done, like to arrange a temporary WiFi dongle quickly, for the guests so that they can continue to get access.”
To keep a quality check on hotels, Treebo has employed ‘Floating General Managers’ – guardians of quality on the ground. Each floating manager comes with a wide array of experience from brands like Taj, Trident, Hyatt, Oberoi, etc., and is given charge of four to five properties at a time. Their role is to conduct staff training, interact with guests, as well as conduct quality audits every single day.
“See, this is the hard-working part that many startups don’t much care about these days. Everything is just aggregation, marketplace etc., whereas the reality is, we are a hotel chain and until and unless we spend hours working hard, technology itself will not be sufficient to maintain that good experience for the guest,” says Sidharth.
Further, Sidharth believes, the most important thing is the DNA of guest service. This implies several company values that each employee must adhere to. One is, ‘Guests first, Partners second, Treebs third (people who work at Treebo).’ It clearly tells people that no matter what happens, the interests of the guests comes first.
Another value is, ‘We are only as good as our last stay’. As Sidharth explains, “You have seen this road sign particularly in the north side, “Savdhani hati, durghatna ghati.” (If you’re not aware, accidents may happen!) Hospitality is not something that you create your product the first time and then sit back and relax. It is something that you need to take care of every single day.”
Challenges Faced
Treebo forayed into the segment when it was extremely cluttered with OTAs, traditional budget hotels, and newly emerged aggregators who had spotted the problem faced by the budget traveller but failed to solve it.
As Kadam Jeet says, “In this scenario, it was very difficult for us to convince our stakeholders about why our full-inventory business model would work. The partners were skeptical about working with us, and it was somewhat challenging to tell them how we were going to add value in the long-term. Guests, who were showered with discounts left and right, would not understand how we were different from other players. That was the biggest challenge we encountered at a very early stage of our journey.”
He further shares that they had to use their personal credibility and academic background and even offer their own money as an assurance to the partners to convince them of their vision for the segment. However, now that the partners have witnessed their revenues and profits rise steeply and guests have started appreciating the quality of experience, the things have eased a bit for the team.
When asked about Treebo’s strategy to deal with competition, Sidharth believes that their two set of competitors include traditional hotel chains and recent startups in the hospitality sector.
On the first front, they claim to have the advantage of price point as they are targeted at the budget segment only. “Plus, we have a stronger and larger network of hotels, covering more locations, as opposed to the traditional chains which usually have a large inventory at one location, proving limited options and flexibility to the customers. Also, we have a warm form of hospitality as compared to the western, cold model adopted by others,” adds Sidharth.
When it comes to the recent startups, the founders believe their full inventory-based franchise business model is the key differentiator in solving the core quality problem and in terms of its unit economics.
As said by Sidharth,
“Other startups followed a middle-of-the-road business model trying to be an OTA and a brand at the same time and failed at being successful at both. Realising the flaw in their model they are now trying to pivot to our model. While it’s flattering to have followers, it’s definitely not going to be straightforward emulation for them. It remains to be seen whether they can also build an honest ‘guest service’ DNA which powers our model.”
Going Forward
As Treebo marches into the next phase of its journey, the founders have three focus areas.
Continuing to innovate to offer a great guest experience: This includes building additional functionalities in their quality-assurance app, launching an experience-focused consumer app that will allow remote check-in, food and taxi integration, etc., and using IoT technology for detecting quality flaws at the property
Expand footprint: By the end of CY 2016, the team aims to be expand in ~50 cities with a network of ~250 properties and 6,000 keys. By the end of CY 2018, these numbers would become 100+ cities, 1500 properties, 40,000 keys.
Invest in building brand Treebo: The company recently concluded its first brand campaign- Mad Over Ratings– which was also rated amongst the top 10 consumer campaigns in the month of September by a leading marketing portal, as shared by Sidharth. The team aims to continue to use a mix of traditional and digital media to build brand Treebo.
The Existing Hospitality Brigade
At present, OYO Rooms is the one with the heaviest war chest, having secured $187.65 Mn since its launch in 2013. It is currently operational in 200+ Indian cities and over 6500 hotels. It also acquired its rival Zo Rooms in December 2015.
Earlier this year in January 2016, Budget accommodation startup, RedDoorz, raised an undisclosed amount of pre-series A round of funding from 500Startups.
In June 2016, budget accommodation startup, FabHotels, raised $8 Mn (approx INR 54 Cr) in a Series A round of funding from Accel Partners and RB Investments. Mohandas Pai’s Aarin Capital, and Qualcomm Ventures also participated in the funding round.
Other startups operating in this space include Wudstay, GoStays, etc.
Editor’s Note
Travel is a sector that benefits hugely from improving per capita incomes. Evidence from other countries suggests that when the per capita income of a country touches $1,500, and there are some sectors that see breakaway growth. And travel & tourism is one such sector. This is because, at such income levels, travel gets added to the consumption basket of more and more individuals despite being a discretionary spend item.
The recent collaboration of MakeMyTrip and Ibibo Group is the signal of the maturing travel ecosystem of the country wherein startups like Treebo, OYO, StayZilla, have an excellent chance of becoming part of the average millennial customer’s spend basket. Whether they are able to retain said customer in the long-term remains to be seen…
