A deeper engagement with owners is definitely one of the key things Oyo needs to achieve to address some of its problems. CEO Ritesh Agarwal, who recently took a larger stake in the company, seems to be on the case.
Oyo Hotels & Homes is stepping up efforts to engage hotel owners and help them grow their business, but denies this is in response to mounting complaints from some owners and multiple hotel associations in India.
Pushing back against media reports, Oyo founder and CEO Ritesh Agarwal said the company’s launch of OPEN (Oyo Partner Engagement Network) in India in April and in Indonesia last month shows that owners are concerned with numerous issues, including growth and access to capital, and not primarily low room rates. Oyo intends to launch OPEN soon in China and globally.
In two recent interviews with Skift, Agarwal discussed the battering Oyo is taking in its home market, India, which contributes to a third of its revenues, as well as in the United States.
Skift recently exposed the difficulties some owners in the U.S. were facing after signing on with the budget chain, while Nikkei Asian Review reported how a massive shortfall in Oyo’s expansion goal in Japan had snowballed into a nasty labor dispute.
But Oyo said the new partner network wasn’t a reaction to association-led opposition in India and related issues, pointing out it had introduced the initiative to Indonesia even though it had not seen a “public uproar” there.
“It’s an open engagement with owners, and on top of that, it puts some commercial responsibilities on us, which makes us deliver better,” said Agarwal.
For example, Oyo pledges to pay 18 percent interest per annum to owners if payments get delayed.
Reacting to issues raised by hotel owners in India, Agarwal said Oyo is “committed to doing all we can to ensure we create value for them and have a long and fruitful partnership, all of which will help us jointly focus on delivering great customer experiences.”
Agarwal claimed that the partner network shows that owners are more concerned about growth issues, while in media reports, it’s “a lot more of prices being low.”
“We see [in OPEN] that one of the things owners say is land prices are growing, and it is getting harder in India to get debt for these kind of properties. How can you make it easier for us to get this debt from banks?
Agarwal said Oyo can help get owners loans because banks trust the Oyo flag.
“The second is asset owners say that the credit card terminal fee from banks is very high. Can Oyo play the central negotiator for all of the owners with the banks to get the best charges?” said Agarwal.
Oyo also heard owners’ concern about being impacted by the implementation of a goods and services tax, he said, and had made several representations to the government as part of industry delegations to ensure that hotels charging tariffs under different segments (luxury, mid-segment, economy) were taxed differently as appropriate.
Along with the new partner network, the low-budget chain introduced a dedicated microsite featuring success stories of asset owners, get-togethers, and videos that can guide owners on improving customer ratings and brand presence. It also debuted an upgraded Co-Oyo app with metrics and graphs that will help hotel owners monitor their operations daily and improve performance.
A Partner Privilege Program gives Oyo India’s owners benefits such as easy availability of cash advances from banks and flat discounts on a stay at Oyo hotels globally.
‘Teething Issues’ in the U.S.
Agarwal responded to charges by some Oyo hotel owners in the U.S. that its property management system is unreliable and that the lack of pricing control at the property level is untenable.
Asked if the basic business model — revenue guarantees for owners in exchange for handing all revenue management control to Oyo — needs fixing, Agarwal said it doesn’t.
“No, while a handful of owners in the U.S. have raised concerns over some teething issues, it is important to note that no one can deny the occupancy jump and the related improvement in RevPAR (revenue per available room) that Oyo can bring,” Agarwal said. “A yield guarantee helps owners trust Oyo’s value proposition, and for Oyo, an agreement based on a yield guarantee at a higher margin is always a win-win situation given our confidence on our competencies.”
Despite some Oyo property owners in the U.S. complaining about incessant over-bookings because reservations made through online travel agencies sometimes don’t appear in Oyo OS, Agarwal claimed that the property management system “is one of the world’s most sophisticated hotel management systems.”
He did point to problems with a third-party system that connects Oyo with some online travel agencies. “We are continuously working to improve and thereby ensure a seamless check-in system for guests,” Agarwal said.
Oyo is testing a tool in some markets that enables owners to adjust room rates up to 40 percent higher or lower than Oyo’s recommended rates.
Oyo claims that it has around a 99 percent renewal rate among hoteliers, but conceded that in both India and the United States it has “one of the easiest exit options,” where either party can terminate the agreement with a pre-negotiated notice period “in case they don’t see the value.”
‘Up and Down’
India’s largest online travel agency, MakeMyTrip, which sells 10 percent of Oyo’s inventory, sees Oyo’s Net Promoter Score — a metric that assesses customer loyalty for a brand, product, or service — going “up and down a bit,” said chairman and group CEO Deep Kalra in a recent Skift interview in Singapore.
“But they are responsive and have a smart team. Ritesh has hired a very smart CEO for India, and they are trying to fix those issues,” said Kalra. Oyo’s CEO – India & South Asia is Aditya Ghosh, who steered India’s low-cost carrier IndiGo to become one of the fastest-growing carriers in the world before joining Oyo last year.
Nevertheless, issues including deep discounting, high commissions, and arbitrary changes in contract have persisted for months in India, where the number of Oyo hotels has bloated to more than 10,000 in tier-one to tier-four cities, from a single hotel in 2013 in Gurgaon, New Delhi, Oyo’s birthplace.
The Federation of Hotels and Restaurant Association of India in July approached the Competition Commission of India to register a complaint. Agarwal’s image in September took a huge hit when some local media reported that the Bengaluru police had “booked” him after an owner accused him of cheating and criminal breach of trust. An FIR (First Information Report) was filed against the Oyo founder and two other Oyo executives.
An FIR, however, does not constitute an arrest, while the term “booked” used by the Indian media is in the context of the FIR being filed, not “booked” as in “jailed.”
Oyo had filed a petition to quash the FIR and had recently been granted a stay on all further investigation.
“In a lot of emerging economies, businesses have to face this kind of challenges,” Agarwal said. He also maintained that a lot of the “noise” in India was created by individuals who were not Oyo owners but the competition who wanted to make sure prices for customers remain high.
Agarwal claimed that despite the furor, Oyo has a 99.5 percent asset-owner retention in India and South Asia — “the biggest benchmark of us being able to bring value proposition to assets.”
Oyo maintained that on average, more than 75 percent of hotel owners have seen an increase of more than three times in occupancy, a 2.5 times jump in revenue per available room, and a significant jump in profit.
Even More Committed
Agarwal, whose stake in Oyo has increased from 10 percent to 30 percent, said this only means he is even more committed to the success of the company.
“If Oyo is not successful, it’s riskier for me.”
Oyo also just raised another $1.5 billion in Series F, with Agarwal investing $750 million and the rest from other existing investors. He said he would be channeling the funds into technology and data science improvements, interior design, and talent.
“We have strong leaders, some of the best in the business, and you know that in our history, we have never lost a single senior executive,” he said.
“We are not perfect,” he added. “We just need to improve in every line item of our business.”
— Skift Executive Editor Dennis Schaal contributed to this report.
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Photo credit: Ritesh Agarwal: “We just need to improve in every line item of our business.” Oyo Hotels and Homes