OYO

Going Big
Or
Going Bust?

Corporate Buddha’19

Think Tank
Fore School of Management
FORE of Management
 OYO- Going Big or going Bust?

Introduction

The fastest growing hotel chain in the world, Oyo Hotels & Homes is set on a
diversification spree. It has proliferated across a varied portfolio of services comprising of Oyo
Life, Oyo Homes, Oyo Workspaces, Oyo Weddingz, Oyo Vacation Homes, Oyo Super- Agent, Oyo
Financial Services and its newest venture - Cloud Kitchens (Adraq by Oyo, O’Biryani by Oyo) and
a Coffee Chain (The French Press). However, in this race, the company is discounting the
importance of its core business where the primary stakeholders of their hotel business, the
customers and the hotel partners have communicated their dissatisfaction with Oyo’s
contractual agreements. This comes in the backdrop of the company’s plans to enter the upscale
luxury segment which thrives on a consistent delivery of first-rate service to the opulent
customer segment.
The company has witnessed an exponential growth in India and has fiercely expanded in
the Chinese market with a presence in 337 cities, 10,000 hotels and a whopping 500,000 room
count in a span of just 18 months.[1] Amidst this robust growth, the company has started
encountering problems associated with upscaling and it remains to be seen whether or not this
will cost the company the prized shared economic proposition with its Hotel partners that made
it great in the first place.

The Growth of the Decacorn

Oyo started its operations in 2013 as an aggregator for hotels, and is now moving towards
a franchise-based model where it controls the operations and provides standardized
management across all its properties. The stayed nights saw an increase from 6 million in 2016
to 13 million in 2017 with the number reaching an all-time high of 75 million in 2018.(Exhibit 1.3)
Towards the end of the FY18, the company was managing 458,000 rooms globally and realized a
value run rate of $1.8 Bn, as per data from the audited annual report 2017-18.(Exhibit 1.4)

1
“OYO is now China’s largest hotel chain; Ritesh Agarwal’s breakneck growth continues” Sandeep Soni, June 25, 2019
www.financialexpress.com/industry/sme/oyos-breakneck-growth-continues-turns-chinas-largest-hotel-chain-allocates-100-
million/1618196/

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This case study has been prepared by Team Think Tank for its annual event: Corporate Buddha
Presently, Oyo has operations in over 800 cities in 80 countries globally, with over 1 million rooms
under management and was valued at $10 billion as reported by Business Standard. [2]

Is everyone happy with Oyo?

Despite the optimism around the rapid diversification and entry into new markets, the
maintenance of the franchisee model is posing new challenges for the company. With an
incursion into different avenues, the brand name has taken a toll on their key segments of budget
and mid-scale hotels. The company has started witnessing warning signs with over 300 hotel
partners logging out of the Oyo platform. [3] This discord stems from the opposition of hoteliers
towards the deep discounting strategy and the lack of transparency in the process where they
exceeded the mutually agreed discount limit. As per a comment by a member from the Hotel and
Restaurant Association of Western India, “The room rates from the customers are not transferred
to the Hotel owners in time with uneven charges deducted from the pool of money, hinting at
the lack of transparency from the aggregator.” [4] The company’s pricing strategy played a key
role in this problem where a dynamic pricing model was observed with lower rent tariffs on
properties with higher online traffic.

This, however, doesn’t stop at the supply side of the platform with the customers
reporting instances where they were denied booking as the hotel owners had cut ties with the
company. The poor customer service, lack of control measures on unprofessional hotel staff, and
the recent accident of electrocution of a hotel guest in an Oyo property have further dented the
brand image for Oyo, resulting in an unhappy customer sentiment towards the brand. This lack
of quality in customer service can be explained through the rising expenses that have contributed
to a net loss of ₹511.8 crore during the year ended 31 March,2019 up from ₹360 crore in FY 2017-
18. [5]

2
“Softbank- backed Oyo raises $1.5 bn at $10 bn valuation for market expansion”, Saritha Rai, October 7, 2019, www.business-
standard.com/article/companies/softbank-backed-oyo-raises-1-5-bn-at-10-bn-valuation-for-market-expansion-
119100700458_1.html
3
“ Oyo faces backlash from hotels over increased fees”, Reuters, October 7, 2019;
www.businesstoday.in/current/corporate/as-softbank-oyo-booms-over-10000-hotels-cry-foul-and-check-
out/story/383337.html
4 “Why many Hotel Owners across India are agitated with Oyo’s Business Model”, Haripriya Suresh, July 26, 2019

www.thenewsminute.com/article/why-many-hotel-owners-across-india-are-agitated-oyos-business-model-106154
5
“OYO estimates FY19 net loss down to 10% of overall sales”, Bidya Sapam, April 03, 2019
www.livemint.com/companies/start-ups/oyo-cuts-losses-to-10-of-overall-sales-in-2018-19-1554250153488.html

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Riding the Luxury Wave

After showing commendable growth in the Budget-Mid scale hotel segment, Oyo has
decided to enter the luxury hotel segment with its recent purchase of the ITC managed Fortune
Select from the Emaar group [6]. It has also acquired a 64-suite property in Ahmedabad for an
undisclosed amount and plans to revamp and refurbish it on the lines of the Oyo design
philosophy.
Owing to the rapid growth in the premium hotel segment in the last few years, the occupancy
rate has also recorded an accelerated growth led by 5- Star hotels. (Exhibit 1.5). Aiming to target
the Business and Corporate travelers, the company plans to widen its customer base and leverage
the growing segment to add more premium and upscale hotels on its roster. However, with
players like the Taj, J.W. Marriott, Intercontinental, the Radisson, and many others who have a
loyal customer base, consistent delivery of quality service and a strong brand equity in the minds
of their guests, it will be a challenging task for the company to leave its mark in the segment and
replicate the success of the mid-scale hotel segment.

Growing, but at what cost?

After widening its footprints across 80 countries, Oyo’s founder, Ritesh Agarwal has no
plans to take a break. The company is committed to continue its expansion in the SEA, ME, Europe
and the USA. The service quality and the pricing issues have hit Oyo in the US market leaving the
company to feel the heat in a new market. Already facing a variety of criticisms by the property
owners and hoteliers in India, Oyo cannot risk antagonizing its stakeholders in a new market. A
diversification strategy in times when the company is struggling to keep its partners satisfied can
be a challenging task for Oyo. The company has to now balance between managing the
stakeholder sentiments and addressing the growing demand of its offerings, in order to sustain
and cater to its expansion plans.

6
“Oyo buys 4-star Jaipur hotel from Emaar” Anumeha Chaturvedi, September 11, 2019 2019,
economictimes.indiatimes.com/industry/services/hotels-/-restaurants/oyo-buys-4-star-jaipur-hotel-from-
emaar/articleshow/71087203.cms?from=mdr

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This case study has been prepared by Team Think Tank for its annual event: Corporate Buddha
Deliverables

1. Oyo's Twitter handle has been flooded with a string of complaints from their customers
regarding their poor service and lack of transparency in payment terms. While this is
happening, the hotel partners are cutting off their ties with the online platform owing to
their deep discounting model and delayed payments. Suggest a two-pronged strategy to
simultaneously manage these stakeholders to ensure their commitment to the platform.
2. The target market of the luxury hotels segment is brand conscious, loyalty and legacy
centric. To enter the consideration set of luxury travelers, Oyo will have to revamp its
brand identity and improve operating efficiency with effective service delivery. Formulate
a comprehensive strategy for Oyo to enter the luxury hotels segment in the Indian
market.

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 ANNEXURES

Exhibit 1.1 Revenue contribution from different customer segments

Source: OYO Annual Report Card 2018

Exhibit 1.2 Revenue generated by different hotel players in the Indian market

Source: OYO Annual Report Card 2018

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 Exhibit 1.3 Growth in terms of number of rooms and revenue

Source: OYO Annual Report Card 2018

Exhibit 1.4 Indicator of Oyo’s growth - Stayed room nights over the years

Source: OYO Annual Report Card 2018

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This case study has been prepared by Team Think Tank for its annual event: Corporate Buddha
Exhibit 1.5 Performance of hotels in terms of ARR, RevPAR and Occupancy Report

Source: Indian Hotel Industry–Review & Prospects, Care Ratings

Exhibit 1.6 Oyo Wizard - Oyo’s loyalty programme

Source: oyorooms.com/wizard

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This case study has been prepared by Team Think Tank for its annual event: Corporate Buddha
 Exhibit 1.7 Oyo Wizard - Subscription Plans

Source: oyorooms.com/wizard

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This case study has been prepared by Team Think Tank for its annual event: Corporate Buddha