Oyo has a seductive model of renovating budget hotels, running them efficiently through technology, and marketing them directly to consumers. But the startup risks imperial overreach by entering markets like the U.S. that differ significantly from its core markets in India and China.
Oyo, a rapidly expanding Indian hospitality company, has entered the U.S. market by opening an office in Dallas and testing properties in Austin and Dallas.
It remains an open question whether the startup, which said it had raised $1.5 billion in venture financing, can bring its flagship service, franchised budget hotels, to the developed market of the U.S.
Oyo has claimed significant gains in its home country of India and other markets, including China, Malaysia, Nepal, and, as of this year, Indonesia.
On Tuesday, it said it had seen its “global stayed room nights” rise from 6 million in 2016 to 75 million in 2018.
A look at job listings in Dallas shows Oyo is hiring for a human resources director, a talent acquisition director, and several other managers and sales people. It’s hired for general managers of properties in Austin.
On Tuesday, The Information reported that Oyo is testing a property in Texas and that it would like to add hundreds of hotels in “dozens of states” this year.
On Tuesday, Oyo said it had completed its business model transition. It initially partnered with manager-owners in a soft brand arrangement. Now it wholly leases and franchises all of its budget hotel properties.
Franchising isn’t new as a business model. However, Oyo stands apart from traditional franchising in three ways. It generates most of its demand directly. Most of its customers book rooms via its mobile app. It also uses technology to wring efficiencies out of various parts of the process, from back-end reservation management to the front-end management of inventory for furniture and amenities.
Lastly, Oyo focuses on the budget market, pinpointing real estate assets that could be far more profitable if run as budget hotels than in how they’re currently being used at their locations. In India, the occupancy rate of a small budget hotel in India typically increases from around 25 percent to about 65 percent within a month after joining, the company claimed.
In September, Oyo said it would enter the UK market with a plan to open properties in ten cities by the end of 2019.
Ritesh Agarwal, the 25-year-old founder and CEO of Oyo, will appear on-stage at the inaugural Skift Forum Asia on May 27. He founded his Gurgaon, India-based startup, whose official name is Oravel Stays, six years ago. It has a minority of its business in co-living, co-working, and other hospitality services. Its Townhouse brand is more upscale than its budget property network.
In an interview in January, Agarwal said the franchise model could be profitable. Agarwal said, “Remember, for hotels, the return is based on two multipliers, price, and occupancy. Even if you keep the price 10 percent lower, and increase the occupancy three times, the return is still roughly 2.8 times. Not bad!”
Update: A company spokesperson offered the following statement in the hours after publication: “We are currently in the early stages of rolling out our first OYO Townhouses in the States. We see great opportunity in this market but also appreciate the competitive nature of franchising and uniqueness of the USA. We will constantly learn and modify our strategy to suit the needs of the US market like we did to succeed in the UK.”
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Photo credit: Shown here is Ritesh Agarwal, CEO and founder of Oyo, an India-based venture-backed hospitality company. Oyo has entered the U.S. market by renovating budget hotels and marketing them savvily. Oyo