Ali Hasan
Introduction – OYO Rooms which are also known as Oyo Hotels & Homes is an Indian hospitality chain of leased and franchised hotels, homes and living spaces.
It was founded by Ritesh Agarwal in 2013 and mainly consisted of budget hotels which aimed at providing quality service to customers at an affordable price.
Oyo started slowly in the early days but then they expanded globally at a rapid pace, all thanks to the funding they received from various investors.
After having a strong presence in India, they expanded to various countries such as Malaysia, UAE, Nepal, China, Brazil, Mexico, UK, Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, the United States and many more countries.
But this rapid expansion came with a cost. Now their major concern was maintaining quality control across all their hotels and ensuring that the customer complaints were looked after and solved within time. This was the area where they had major problems.
They expanded too much too quickly that they realized they were spread too thin and were unable to manage a lot of their business. After receiving a lot of funding and expanding in as many countries as possible, what could have gone wrong for them?
The answer – A worldwide pandemic and complete lockdown due to the Coronavirus. So the big question is – can Oyo survive the ruthless pandemic? Keep on reading to know the answer.
Struggles & Early Days – Ritesh Agarwal learned coding when he was 8 years old and was interested in computers.
Later, he went to college but decided to take 1 day off to work on his own venture and strangely enough, he never went back.
While travelling to many cities, he mostly stayed at budget hotels due to price constraints. After staying at many hotels, he realised that most hotels don’t even have the basic amenities for an average traveller.
To seize the opportunity, he started Oravel Stays in 2012 and secured funding of Rs 30 lakhs by Venture Nursery. Oravel worked as a platform which connected travellers to hotels but it was facing a lot of problems as there was a lack of quality services and trained staff.
Hence, in 2013, he re-launched Oravel Stays as Oyo Rooms. Oyo means “On Your Own”.
Oyo was different because now Ritesh Agarwal himself took control of the rooms and changed everything from clean beds, clean bathrooms, lights, fan & AC to trained staff, better room service, good food and easy check in/out. This ensured consistent quality across all the rooms.
But his biggest win was winning $100,000 at The Thiel Fellowship. It’s an annual contest held globally for students under the age of 22 and the selection rate is below 0.1%.
Some of these statistics will totally shock you:-
- At age 20, he raised money from investors,
- At age 21, he hired 50 People,
- At age 22, he had 500 Hotels,
- At age 24, he raised $1 Billion &
- At age 26, he has 46,000 Hotels which is world’s 2nd largest hotel chain, all before the age of 30.
Marketing Strategy – The marketing strategy of Oyo is quite simple and clear where they target young audience who are between the ages of 20-30 and want an affordable accommodation at a satisfactory price when travelling.
Their ads have been quite creative where they focus on the problems which a traveller usually faces where he doesn’t get the services as promised by the hotel. Hence, Oyo focuses on solving the major and critical issues by giving the customer a stress-free, satisfied and quality experience.
User Base – According to Oyo, 5 properties were booked every second in 2019. They have more than 50 million android app downloads and are present in more than 80 countries in over 800 cities and have a total of 1 million hotel rooms. They revealed that in 2019, a single user stayed in an Oyo property for 84 continuous nights.
Funding & Valuation – So far Oyo has received a total of $3.2 billion (Rs 22,000 crores) in funding over 16 rounds. Their latest funding was raised on December 10, 2019.
There are a total of 22 investors. Major Investors in Oyo are as follows:-
- SoftBank,
- Airbnb,
- Didi Chuxing,
- Greenoaks Capital,
- Sequoia India,
- Lightspeed India,
- Hero Enterprise and
- China Lodging Group.
SoftBank is a major investor in Oyo as it has invested about $1.5-$2 billion in it and owns about 48% of the stake. Although Oyo was valued at $10 billion after their latest round of funding, many experts believe this valuation to be a lot less after the pandemic.
Revenues & Losses – Oyo increased its revenue to $951 million (Rs 6,616.1 crores) for the fiscal year 2019, from $211 million (Rs 1467.9 crores) for the previous year.
Their revenues grew by 4.5 times but at the same time their losses also grew to $335 million (Rs 2,330.6 crores), or 35% of revenue, from $53 million (Rs 369 crores), or 25% of revenue, as the startup expanded into China and various new markets.
Their losses grew by 6.2 times.
According to Oyo, they are on a path to profitability and will be profitable in the near future. Although no exact deadline has been set to achieve this goal and with an ongoing pandemic across the globe, the deadline will be pushed even further.
However, their gross margin has increased to 14.7% from 10.6%.
To tackle the pandemic and its disastrous effects, Oyo has decided to cut back in certain markets and will fire about 20% of its 12,000 people in India. They have also pulled out of 200 cities in India, where they accounted for less than 5% of revenues.
Controversies and Allegations – There have been a lot of controversies and allegations about Oyo which are as follows:-
- Use of predatory pricing which violates its own terms and conditions,
- Sending of unsolicited emails to senior & mid level employees of their competitors,
- Sharing of customer data with the government which is described as a threat to privacy,
- Not paying hotel owners their dues on time.
The Big Question – Now we come to the big question. Can Oyo survive the ruthless pandemic? The answer is not straight forward as its revenues have nose-dived and have taken a massive plunge by 50%-60%.
Agarwal has opted out to receive his salary for the rest of the year while members of the company’s leadership team have taken pay cuts of 25-50%.
Oyo has also reached out to governments in India and other countries to offer some of its properties as quarantine centers or for hosting medical workers, aircrew and others.
Ritesh Agarwal has reassured his employees that the firm will emerge stronger and more resilient after this crisis.
Even before the pandemic, Oyo had its fair share of struggles such as maintaining quality control and keeping the trust of their hotel partners and now with the ongoing travel restrictions and a global recession, things don’t look good for them and only time will tell whether they will bounce back or not.
But chances are that they can bounce back if:-
- They receive some cash injection by yet another round of funding,
- They focus on sustainability and profitability and
- Stop their pursuit of rapid expansion for a while.
