RedSeer Report PDF

Room for
millennials in
a $4 billion
industry
A report on the Indian mid segment
hotel industry
September 2018
A RedSeer Perspective
Bangalore I Mumbai I New Delhi I Dubai I New-York | Singapore Flexible in Approach, Firm on Results
Indian Mid
Segment Hotel
Market
September 2018
2 ROOM FOR MILLENNIALS IN A $4 BILLION INDUSTRY - A REPORT ON THE INDIAN MID SEGMENT HOTEL INDUSTRY
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ROOM FOR MILLENNIALS IN A $4 BILLION INDUSTRY - A REPORT ON THE INDIAN MID SEGMENT HOTEL INDUSTRY 3
Preface
Anil Kumar
CEO, Redseer Consulting
The total room inventory in India has crossed The need for faster growth in this segment is
2.5 million rooms in FY18 with the mid leading to a change in approach by hoteliers
segment hotel category growing at above as well. They are looking for asset-light
the industry average growth rate. Growth growth compared to traditional approach of
in travellers’ aspirations, appreciation of owned/ leased hotels.
the US dollar, rising international tourists
and implementation of the GST have fueled This report is an attempt to decode- what
the growth of this category of hotels with gives a player right to win in this segment?
domestic and international chains expanding
their presence in India.
The mid segment category is changing

fast. Rising influence of millennial travellers
is leading to a change in the face of the
hotel industry. The needs of millennial
travellers are different from the needs of
older generation. Millennial travellers need
good speed internet; they are fond of open
collaborative spaces; they are looking for
experience rather than a place to stay.
Content
Introduction 06
Overview 07
Total room inventory in India 09
The mid segment opportunity 10
Growth drivers for the mid segment 12
Market size of chain affiliated mid segment hotels 14
Operating models in the industry 15
Emergence of the franchise model in India 17
Who are the key players in the mid segment? 18
What gives the right to win? 23
Capabilities 24
Key metrics 31
The consumers’ perspective 36
Growth and future trends 41
INTRODUCTION
Overview
Travel and tourism is one of the largest economic sectors in the world. In India, the direct contribution
of travel and tourism (which includes accommodation, transportation, entertainment and attractions)
was 3.7% of the total GDP in 2017 or ~USD 91 billion and is expected to rise by 7.1% p.a. from 2018-
2028 to ~USD 195 bn making India’s travel and tourism sector the 6th fastest growing in the world.
Accommodation forms an important part of the travel and tourism industry with the total room
inventory of ~2.5 million in 2017 in India.
Snapshot of the industry
3.7% ~2.5 Mn1 ~65 %2 ~USD 643

of GDP in 2017 Rooms in 2017 Occupancy Rate ARR in 2017
in 2017
1. RedSeer Analysis: Bottom-up approach

2. Occupancy Rate is for 10 chain affiliated hotels in 10 cities in India
3. 1USD - INR 65; Average occupancy and ARR is that of chain affiliated hotels in 10 cities in India
Sources: Secondary Research; RedSeer Analysis
The Indian hotel industry can be categorized under three broad segments based on level of
service- Upscale Hotels, Mid-market Hotels and Economy Hotels.
Upscale hotels - or Mid segment hotels - Economy hotels - or

luxury hotels are those provide simpler services yet budget hotels focus
with a rating of 5 stars ensuring the comfort of the on providing clean
and above. The rooms guest. They usually have a and inexpensive
are decorated with high single restaurant and may accommodation to the
quality furnishings and the offer basic facilities like a guest along with some
hotels offer multicuisine business centre and a gym. basic limited services.
restaurants and lounges, Fortune, Lemon Tree, IBIS, Examples include Comfort
concierge services among Park Inn by Radisson, etc Inn, OYO Rooms, Treebo,
other top-notch services. are some examples of chain etc.
Chain affiliated upscale affiliated mid segment
hotels in India include Taj, hotels in India.
Oberoi, ITC, etc
Categories by level ofbyservice

Categories level of service Supply split by
Supply level
split by of service
level in 2018in 2018
of service
5%
Upscale
Hotels
25%
Mid
Segment
Hotels ~ 2.6 mn
Rooms
70%
Economy
Hotels
Economy Hotels Upscale Hotels Mid Segment Hotels
Sources: RedSeer Analysis
Total Room Inventory in India
As of FY 2018, the total room inventory in is expected to continue to cater to a high
India reached~2.64 million rooms with the demand for hotels in these segments. The
chain affiliated inventory making up ~11% non-chain affiliated rooms that comprise of
of the supply. With the expansion of various independent hotels, boutique hotels, guest
international and Indian domestic chains, houses and unorganized supply make up
the chain affiliated inventory has grown majority of the market but grew at a much
at a CAGR of ~10% between 2016 and slower pace of 3% in the same period.
2018 with the mid segment and economy
hotels growing at a faster pace. This trend
Total room inventory in India (2016-2018)

Categories by level of service
# of rooms XX Chain Affiliated Non-Chain Affiliated
CAGR XX%
4%
~2.45 Mn ~2.54 Mn ~2.64 Mn
3%
90% 89.5% 89%
10%
10% 10.5% 11%
2016 2017 2018
Chain affiliated hotels have been growing 3x times

that of non-chain affiliated hotels
THE MID
SEGMENT
OPPORTUNITY
Mid segment hotels are the ones that offer are chain affiliated. In the mid segment hotel
basic and comfortable amenities and are category, chain affiliated supply is growing
largely targeted towards business travellers. at an annual rate of ~12% which is above the
Some examples of mid segment, chain industry average. This growth in supply is to
affiliated hotels include Lemon Tree, Ginger, cater to a growing demand for this segment.
IBIS (Accor), ITC Fortune, etc. At the end
of FY 2018 mid segment hotel inventory
constituted ~25% of the total hotel inventory
in India. Within that, about 20% or ~120,000
Total mid segment chain affiliated inventory in 2018

Total mid-price chain affiliated inventory in 2018
Total room inventory Mid segment inventory Chain affiliated mid
in india segment inventory
~ 2.64 Mn ~ 590 K ~ 120 K
~ 120 K
Rooms
Total room inventory in the

chain affiliated mid
~25% ~20% segment category in 2018
Growth drivers for mid segment hotels
In the last couple of years, the demand for the mid segment hotels has been increasing due
to a variety of reasons:
The pool of domestic travellers has increased in the past

few years due to three main reasons. The first is the rising
middle class which has not only increased domestic tourism
but also led to a change in where people prefer to stay.
According to the latest data of the Ministry of Tourism, the
Rising domestic Domestic Tourist Visits in 2016 were over 1600 million
which is 13% higher in comparison to 2015. Moreover, due
demand to rise in affordability these travellers now choose to stay in
budget and mid segment hotels as opposed to staying with
family and friends.
The second reason for rising domestic tourism is the

appreciation US dollar. A steady appreciation of the US
dollar to the Indian rupee over the last 5 years has made
international travel less attractive to many Indians who are
now seeking vacation options within the country.
The third reason is the expansion of business activity in Tier

II and III cities. Government initiatives like the Start-up Oasis
in Rajasthan, Financial Valley Vizag and T-Hub in Andhra
Pradesh have moved businesses to smaller cities. This has
created a demand for safe and quality accommodations in
these locations.
The Electronic Travel Authorisation or e-visa facility became
operational in India in November 2014, now allowing majority
countries/ territories to apply for their visas online. This has
helped encourage foreign tourism in India. According to the
Ministry of Tourism- India Tourism Statistics, 2017, India’s share
Rising of international tourist arrivals is 1.18% and it ranks 25th in the
world. The absolute foreign tourist arrivals in 2017 was projected
international to be over 10 million, an increase of 15% from the previous year.
tourists Many of these foreign tourists looking for affordable yet safe
accommodations prefer to stay in chain affiliated hotels.
Before the GST, total taxes on hotel rooms roughly came to

around 20%. Now, for rooms with tariff between INR₹2500 and
INR₹7500 the GST is 18% while that for rooms a tariff higher
than INR₹7500 is 28%. This has led to a rise in the demand for
Implementation mid segment hotels as they offer similar comfort and services at
of GST a much affordable price.
International tourism growing at over 10% a year and domestic

tourism rising due to the depreciation of the Rupee have led to the
rise in the demand for mid segment hotels
The demand supply
The mid segment gap has helped
hotel market is increase the average
sized at occupancy to
USD 4 Bn 65%
Market size of chain affiliated hotels in the mid

segment category
The mid segment hotel market is sized at hotels like Courtyard by Marriott, Garden
~USD 4 bn out of which the contribution Inn, Hyatt Palace, etc, the demand has been
of chain affiliated hotels is about 35% as of growing at double the rate. This gap has led
FY 2018 (estimated for only room rental) to an increase in the average occupancy and
which has been growing at an average of ARR as compared to the previous year. This
~17% annually. This rapid growth in the growth has led to an increased percentage
past few years has been facilitated by the share of chain affiliated inventory to the
above-mentioned factors that have caused overall revenue from the mid segment.
a demand supply gap which is expected to
continue in the future. Even though there
has been an influx of many mid segment
Market size of mid segment hotels in India Growth drivers

Market size of mid segment hotels in India Growth drivers
Market Size XX Chain Affiliated Non-Chain Affiliated Changing preferences: Travellers
increasingly prefer to stay in hotels
CAGR XX% rather than with family/friends
8%
Alternative to international travel:
Appreciation of the US dollar has
USD ~3.3 Bn USD ~3.5 Bn USD ~4 Bn made international travel less
attractive for Indians
Expansion of business activity:
Tier II and III cities are becoming
destinations for business activities
5% increasing demand
Increasing international tourists:
70% 68% 65%
Introduction of e-visa has increased
the absolute number of international
visitors to India
Implementation of GST: after GST
30% 32% 35% 17% tax on rooms with tariff greater than
7500 is 28%, increasing demand
for mid-segment hotels
2016 2017 2018
Operating models in the industry
Hotels irrespective of segment, largely quality due to the prominent involvement of

operate on one of the five operating models- another party.The Indian hospitality industry
owned, leased, franchise agreements, joint has historically been asset heavy with most
ventures or management contracts. While, of the hotels operating on the ownership
owning the property ensures control over model. This model allows the hotels more
quality and day to day operations, franchises control over the property and operations
and management contracts allow rapid and ensures that the quality of the brand
brand expansion due to the minimum is maintained. But rising cost of land and
investment requirement. However, for growing levels of debt have been pushing
models other than the owned or leased the hotels to adopt an asset light model to
brands must assume risk of operational expand their presence.
Typical responsibilities of the hotel/brand in various operating models

Responsibility of the hotel / brand in various operating models
Responsible Depends on agreement Not responsible
Operating Models Own Build / Renovate Operate Profit Sharing
Owned Hotels
Owner builds, owns and manages the Owner keeps the profit
property (owner operates the property)
Lease & License

Owner Gets A Rent;
Hotel group leases property from a
Operator Keeps The Profit
developer or owner and pays rent
Joint Venture
Two groups enter into a partnership to own Partners share profit in a
and operate a property and profits are pre-decided ratio
shared in a pre decided ratio
Franchise Agreement Brand owner get a

Property owners use brand names of royalty; Property owner &
renowned hotel groups for a fee or royality operator keeps profit
Management Contract
Operator manages hotel
Management companies operate properties
for a fixed fee; Owner
for a fee and the owner keeps what is left
keeps profit
after management fee, expenses and taxes
2% 30% 60-70%
of the hotels operate of the hotels in Europe of the room inventory
on the owned/ leased operate on the owned in India falls under
models in the United or leased models the owned or leased
States models
In the United States, just about 2% of the the traditionally popular- owned model. As
hotels operate on the owned or leased an operator, brands have certain advantages
model while the remaining operate under and disadvantages in the different operating
management contracts and franchises. models. While asset light models provide
Europe too has significantly moved away the benefit of rapid growth with minimum
from the owned and leased operating investment, they have several drawbacks.
models with over 70% of the hotels For example, in a lease agreement, the
operating under management contracts operator is obliged to pay rent even in a lean
and franchises. In India, the recent influx business period unless otherwise stated in
and rapid expansion of international hotel the agreement. Similarly, in a franchise the
brands and the rising cost of land have quality of service can not be controlled and
encouraged homegrown brands like Taj, ITC, under a management contract, the earnings
Oberoi, The Leela, Lemon Tree, etc to explore are limited to a fee and the operator/ brand
asset- light models and move away from might face owner interference.
Advantages and disadvantages to the operator in various operating models

Advantages and disadvantages to the operator in various operating models
Advantage to the brand operator Operating Models Disadvantage to the brand operator
• Large capital requirement
• Limited operational experience and
• Can control quality of operations Owned Hotels marketing capabilities in case of
non-chain affiliated hotels
• Faster growth of the brand • Obligation to pay rent even in case

• Complete control over the Lease & License of lean business period
operations and quality • Higher business risk
• Operational experience of atleast • Lack of flexibility in decision making

one partner Joint Venture • Clash of cultures of two parties may
• Shared risk and liability reflect in operation quality
• Brand growth with minimum

• Quality of service can not be
investment
Franchise Agreement controlled
• Low market risk and no operating
• Earnings are limited to the fee
risk
• Brand growth with minimum / no
• Earnings are limited to the fee
investment (cost of property
development, operations borne by
Management Contract • Owner interference may hamper
development / operations
the owner of the property)
Emergence of the franchise model in India
India has seen the emergence of the they piloted the aggregator model to get a
franchise model especially in the budget or foot in the door in more properties and build
economy segment from the 2010s onwards scale. OYO now has India’s largest hotel
with chains like OYO, Treebo and Fab rapidly network with 8500+ hotels across 230 cities
expanding and standardizing this largely and has recently expanded internationally to
unorganized segment. Founded in 2015, Nepal, Malaysia and China.
Treebo now has 400+ properties in 80+
cities and Fab hotel too has established a
network of 400+ hotels across 35+ cities in
the last 4 years. OYO Rooms began in June
2013 with the intent to be a full-service
hospitality provider (which is how they
functioned their first Gurgaon hotel). But,
Hotel chains like OYO, Treebo and Fab have

been able to rapidly expand by adopting
asset light operating models
WHO ARE THE
KEY PLAYERS
IN THE MID
SEGMENT?
Key players in the mid segment
Mid segment hotels comprise of chains like expanding to famous leisure destinations
Lemon Tree, Ginger Hotels, IBIS, Sarovar, like Goa. Ibis is a joint venture between
Royal Orchard, Courtyard by Marriott, etc.. InterGlobe Enterprises and Accor Hotels in
Lemon Tree and Ginger Hotels(by the Indian India. Ibis properties typically carry higher
Hotels Company) were founded in 2002 and room inventory ranging from ~115 rooms
2004 respectively. Both these hotels have to ~450 rooms and are currently located in
over 40 properties in India with an average metros and prominent tier 1 cities.
number of rooms per property ranging from
85 to 105. Majority of these properties
are located in top 11 cities but are slowly
Key players in the mid segment hotels category (2018)

key players in the mid segment hotels category (2018)
Founded in/
2002 2004 2005 2017
Entered India in
# of Properties* 48 hotels 42 hotels 18 hotels 35 hotels
Total Inventory ~ 4900 rooms ~ 3900 rooms ~ 3400 rooms ~ 1100 rooms
Owned / leased Owned / leased Joint venture between Leased

Operation Model management management interglobe enterprises management
contract contract and Accor hotels contract
* As of FY 2018
Sources: Secondary Research, RedSeer Analysis
After conquering the budget space, OYO operational efficiencies and sales capabilities
has moved towards the more lucrative to grow rapidly.OYO Townhouse is targeted
mid segment space by introducing OYO towards millennial business travellers
Townhouse, taking control of the operations looking for smart convenience at affordable
side if the business. The launch of OYO prices. The space is equipped with high
Townhouse has brought mid segment speed internet, white boards, coffee by
hotels to an interesting point where hotels Bonhomia, free printer, business services,
like Lemon Tree, Ginger, Ibis, Fortune, magazines and a 24x7 kitchen.
etc not only have to compete against a
new operating model but also improve
Oyo Townhouse profile

OYO town house profile
TOWN HOUSE
Target Audience Current Properties Facilities Expansion Plans

Millennials especially 35 properties and 1100 comfortable beds, high speed Plan to expand to 4000 rooms
business travellers. Comfort, rooms in 12 cities internet, TV with Netflix across 15 cities by the end of
efficiency, convenience and free printer, business services 2018
affordability are the focus 24x7 kitchen and security
* As of FY 2018
Sources: Secondary Research, RedSeer Analysis
Rapid expansion of Oyo Townhouse since launch in

2017 has been facilitated by its choice of asset-light
operating models
Following the industry standards most of Ginger on the other hand had 70% of its
the traditional hotels are currently asset inventory under the leased model and only
heavy or operate on leased property. But 20% managed. Given that majority of the
since the brand standards are easy to adhere properties are owned or leased, Ginger and
to as compared to the hotels in the luxury Lemon Tree have been expanding inventory
segment, the transition to management by 12-17% from the last year with a high
contract is easier for the chains in the focus on management contracts. OYO
mid segment category. As of FY 2018, Townhouse however has expanded its
Lemon Tree had a total room inventory of inventory by 55% as compared to last year
~4900 with about 60% of them owned, primary owing to its choice of operating
~30% managed and the remainder leased. model.
Split of operating models and velocity of growth of rooms (2018)

Velocity of growth of rooms 2017-18 X% Owned Properties Leased Properties
# of rooms in 2018 X Managed Properties
~13% ~16% ~55%

~3900 ~4900 ~1100
20%
33%
60%
10%
70%
57%
40%
10% 10.5%
* As of FY 2018
Other factors that have added to the Hotels with OYO Townhouse on parameters
success of OYO Townhouse include property likeproperty turnaround, operational
turnaround time, operational efficiencies capabilities and distribution channels to
and distribution capabilities.The next few understand which model and strategy can
sections will compare the Indian traditional best support future expansion.
mid segment hotels- Lemon Tree and Ginger
Key Features of an OYO Townhouse property

Use Case: OYO Townhouse designed to delight the millennial customer
With comfortable beds, blackout curtains, Digital infrastructure makes booking,
high speed internet and a television with check in/out, room features, etc easy
Netflix makes Townhouse match the to use. The buildings are also
expectations of the millennial traveller. Smart Smart installed with LEDs and green-rated
Rooms Building ACs keeping the environment in
mind
The common area offers tea,

Townhouse offers 24/7
coffee, business services,
customer support by a well
free printers, magazines,
trained and certified staff team.
white boards and an ample
Specialized services like deep
number of power sockets.
cleaning and maintenance are
outsourced to ensure high
Smart Smart
quality and efficiencies
Spaces Services
OYO Townhouse offers a 24/7 kitchen Townhouses are placed in good
which offers a variety of options from Smart Smart neighborhoods that either have no
all around the world and also keeps in Menus Location viable options or options that are over
mind the needs of its health conscious priced or sub standard. Townhouses
guests. Orders can be placed from are easily accessible from all major
their mobile app airports, railway/ metro stations
Source: Secondary Research
The velocity of growth of rooms for OYO Townhouse

was more than 3x the velocity of growth of hotels like
Lemon Tree and Ginger operating on the conventional
owned or leased models
WHAT GIVES THE
PLAYERS THE
RIGHT TO WIN?
After understanding the industry in detail, it is clear that strong capabilities around
property turnaround time, procurement, manpower efficiency and distribution are
important for a player to claim its position in the industry. These capabilities are further
indicated in key industry metrics like occupancy, gross operating profit and return on capital
employed which help identify the good performers.
Capabilities
Capabilities of a hotel chain are determined compared to other mid segment hotels.
by a variety of things including value The brand has a strong in-house technology
proposition, hotel network and vision and platform that helps it achieve a competitive
aspirations of the brand. With the use of advantage over its peers so much so that
technology, a stronger network of rooms other players are spending 3-4% of their
of its parent company and a unique value top line to compete with OYO’s technology
proposition, OYO Townhouse has stronger capabilities.
capabilities when it comes to operations as
1. Property Turnaround Time

Turnaround of a property refers to time months. Through this process the brand
taken to make a property operational. The visits the property several times to ensure
property turnaround time largely depends compliance with the brand requirement. The
upon the stage from which the property next step involves the construction of the
transformation begins. Green field properties foundation followed by interiors and staffing
are the ones that need to be built from the making the hotel ready for operations. For a
scratch, warm shell properties are those hotel like Lemon Tree or Ginger these steps
which include the basic infrastructure but take 24-30 months on an average. The time
require interiors, furniture and other detailing taken reduces if the brand opts for a warm
and brown field properties have all the shell property as the foundation is already in
infrastructure in place and require only a place. For a hotel like Lemon Tree or Ginger,
little renovation and the required branding. the cost incurred per room is ~USD 25,000
which is split between structure, interiors
The process of constructing a property
and services (air conditioning, lift, etc) in the
from scratch begins with property selection
proportion of 30%, 45% and 25% respectively.
and inspection which could take roughly 6
“Construction is carried out “The OYO team gave a new
to minimize maintenance face to our hotel and took
cost. For example, there complete responsibility in
is minimum use of glass, renovating the hotel end
rooms are not carpeted, and to end and completed the
construction is in a way to project in 3 months”
allow maximum sunlight” - Property Partner,
- Hotel Manager, Ginger OYO Townhouse
Property Turnaround Time

Turn around time
Warm shell
Brown field property 120-200 days
Green field property
75-120 days
10-15 months
Warm shell
180-240 days
Green field property
24-36 months
Brown field property - includes a building or infrastructure which was operational and requires little rework / renovation
Warm shell - includes a properties with the basic infrastructure but requires interiors, furniture and hotel branding
Green field property - includes building property from scratch. There is no existing building or infrastructure
Source : RedSeer Analysis
For branding reasons traditional hotels but open to other options, OYO takes 75-
prefer warm shell or green field properties. 200 days and minimum investment to have
While both these options provide more a Townhouse operational. Whereas Lemon
flexibility and customization, they take Tree and Ginger take anywhere between
significantly longer to be operational as 180 days to close to 3 years if the property
compared to brown field properties. Through is developed from scratch. However, the
technological innovation, OYO has achieved flexibility of warm shell and green field
transformation efficiencies which not only properties allows Lemon Tree and Ginger
allow properties to be finalized in fewer (2-3) to minimize future maintenance cost. For
meetings but also transform properties in example, these hotels choose to have
a manner that is quicker and cost effective. minimum glass and non-carpeted floors.
Favourable towards brownfield properties
2. Bulk Procurement
Procurement involves the sourcing of keep increasing as the inventory increases.
items like bed linen, towel sets, toiletries, OYO Townhouse can benefit from OYO’s
crockery and cutlery, F&B and stationery. inventory size of 200,000+ globally, leading
By opting for a centralized procurement to economies of scale in the procurement
strategy, hotels can avail the benefits process. Another interesting fact is that
of bulk discounts. The procurement for in addition to being centralized, the
Lemon Tree, Ginger and OYO Townhouse procurement at OYO Townhouse is cashless
is centralized except for perishable F&B at the store level. This helps increase
products enabling all of them to avail the efficiencies in manpower as discussed in the
benefits of bulk sourcing. These benefits next point.
Cost benefit in procurement with increasing number of rooms (illustrative)

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By leveraging technology
Hotels are moving and outsourcing majority
towards outsourcing of its operations OYO
various operations Townhouse is able to
rather than performing maintain a low staff to
them inhouse room ratio of 31 staff
members per 100 rooms
3. Staff Efficiency
Staff efficiency comes from the decision accounts are carried out centrally lowering
to choose between outsourcing certain the store level requirement of these
operations and performing them inhouse. executives. The remaining activities like F&B,
It also involves streamlining operations housekeeping and laundry are traditionally
in a way that minimizes the average staff carried out by the hotel itself. However, to
required per available room. Employee keep its onboarding, training and employee
benefits form the largest expense of most benefits costs low, Ginger partners with
hotels. Out of the main departments, vendors for housekeeping and outsources
hotels generally outsource security to an laundry and F&B Production in addition
external agency and operations like HR and to security keeping only the managers of
Operations (2018)
Operations (2018)
F&B Housekeeping Laundry Security
outsourced* outsourced outsourced outsourced
Inhouse Inhouse Inhouse outsourced
In partnership
outsourced* outsourced outsourced
with vendors
* F&B operations is outsourced where as services are inhouse

these departments on the company pay every property and the stores are managed
role. Outsourcing of various departments by the front desk instead of a separate team.
not only helps reducing costs but also get F&B Service and Front Desk staff is on OYO’s
better qualified people to handle various payroll while housekeeping is carried out in
departments and change the staff ratio with partnership with vendors. All other activities
respect to seasonality. like F&B production and laundry are out
sourced while, HR and Accounts are solely
Leveraging technology at every level, OYO
carried out at the central level allowing
townhouse has managed to achieve high
them to have a very low staff to room ratio
operational and manpower efficiencies.
of ~0.31.
Cashless and easy procurement eliminates
the requirement of an accounts team at
Staff to room ratio (2018)

Staff to room ratio (2018)
Staff to room ratio X
F&B Maintenance Housekeeping Front Desk HR Accounts Store
4% % 2%
4% 1 %2
1% 17
22 % %
% 26
12
%
19%
41%
~0.67 ~0.85 ~0.31

16%
%
29
31% 12% 57%
F&B includes F&B Production and Services for Lemon Tree and only F&B Service for Ginger and OYO Townhouse
“Outsourcing of staff is a growing trend. Hotels are

choosing to outsource secturity, housekeeping, F&B
production and laundry with 1-2 manager level
employees being inhouse.”
- Operations Manager, Lemon Tree
4. Distribution Capabilities
OYO Townhouse can reap the benefits of a hotels heavily rely on corporate tie ups and
strong proprietary distribution channel. This travel agents (online and offline) for sales.
allows a majority (90-95%) of its bookings Lemon Tree and Ginger for example have
to come through its own channels. It gets 60-65% of their sales through corporate
~55% of its booking requests through the channels, 30-35% through online and offline
website or app and ~40% through corporate travel agents and only 5% through the
tie ups. company’s own websites.
The split for other hotels in the mid segment

category looks very different. Most of these
Distribution Channels (2018)

Distribution channels (2018)
Own Website Corporate Tie Ups OTA / Travel Agent
55% 40% 5%
5% 65% 30%
5% 60% 35%
“Most of these hotels are in city locations making

corporate tie ups as the primary sales channels.
However, for destination hotels mojority of sales
happens through OTAs and travel agents”
- Sales Manager, Ginger
To summarize capabilities:
Capabilities of Key Players- Summary

Capabilities of key players - summary
Capabilities Comments
Oyo’s strong transformation capabilities

Property Turnaround 75 days
180 days - 36 months help it achieve shorter turn around time
Time 15 months
as compared to traditional hotels
All chain affiliated hotels have a

Procurement Centralized centralized procurement process which
allows cost benefit
With activities like accounts and HR

eliminated at the store level and use of
Staff-to-room ratio ~0.85 ~0.87 ~0.31
technology enable Oyo to maintain a
low staff-to-room ratio
Corporate Corporate Corporate Oyo has a strong proprietary distribution

Tie-ups - 60% Tie-ups - 65% Tie-ups - 40% channel and gets most bookings from
Distribution
OTAs - 35% OTAs - 30% OTAs - 5% their own website while traditional hotels
Website - 5% Website - 5% Website - 55% rely on corporate tie ups and OTAs
Strong technology for maintaining internal

operations and delighting customers has helped
OYO to achieve a low staff to room ratio, develop a
competitive property turnaround time and reduce
dependency on external distribution channels
Key Metrics
The industry uses certain key metrics like occupancy level, gross operating profit and
return on capital employed to compare the performance of various hotels. Well developed
capabilities translate into improved metrics. For example, good distribution capabilities
show in a higher occupancy level of a hotel or a low staff to room ratio will help a hotel
achieve a better gross operating profit. Three important metrics of the hotel industry are
discussed in further detail below:
1. Occupancy and RevPAR

Occupancy rate is the ratio of the used This coupled with good services at a cost-
rooms to the total number of rooms effective price have helped the company to
available. It tells us the number of rooms achieve an average occupancy of 90% which
occupied in a hotel at a given point of time. is higher than Lemon Tree and Ginger whose
OYO Townhouse has the benefits of a robust occupancy ranges between 65%-75%.
distribution channel built by OYO rooms.
ARR, Occupancy and RevPAR (2018)

Occupancy % X% ARR (USD) RevPAR (USD)
~65-70% ~75% ~90%

70 100%
90%
60
80%
50 70%
60%
40
50%
30 ~60 40%
~42 ~46 ~45 30%

20 ~41
~28 20%
10
10%
0 0%
ARR- Average Room Rate, RevPAR- Revenue Per Available Room (ADR X Occupancy Rate)
A metric linked to the Occupancy rate is Tree and Ginger. Despite a higher ARR, the
RevPAR. RevPAR or Revenue Per Available RevPAR of Lemon Tree is almost at par with
Room is calculated by multiplying a hotel’s OYO Townhouse. With an ARR of ~USD 45,
Average Room Rate (ARR) by the occupancy OYO Townhouse has a RevPAR of ~ USD
rate. It tells us the contribution of each 40 owing to a high occupancy rate. Ginger
room to the overall revenue of the hotel. Hotels on the other hand has a lower ARR
Owing to a high occupancy, each room of and occupancy as compared to Lemon Tree
OYO Townhouse contributes more to the bringing the contribution of each room to the
overall revenue as compared to Lemon overall revenue further down.
2. Gross Operating Profit Per Available Room (GOP PAR)
The marketing, distribution and operation Annual GOP PAR in USDGOP PAR in USD
Annual
strategy of a hotel reflect in its annual ~3700
Gross Operating Profit per available
room which is the Earnings Before
Interest, Taxes and Depreciation for each ~2800
available room. The annual GOPPAR for

Ginger, Lemon Tree and OYO Townhouse
is ~USD 900, ~USD 2800 and USD
3700 respectively. Comparing Ginger
~900
and Lemon Tree, Lemon Tree’s higher
GOPPAR can be attributed to a higher
Average Room Rate and occupancy as
compared to Ginger, which keeps the
Average Room Rate low. Also, with
more number of properties under the 1USD = 65
lease model, Ginger pays a higher rent GOP PAR- Gross Operating Profit Per Available Room (EBITDA /Available Rooms)
in proportion to Lemon Tree leading to

FY 2018 for Ginger and Lemon Tree and FY 2018 for Townhouse
a lower Gross Operating Profit. With
a different strategy OYO Townhouse
can maintain a very high GOPPAR as
compared to Lemon Tree and Ginger. A
high occupancy leading to a high RevPAR,
majority of booking coming from own
distribution channels leading to a low
commission pay out and technologically
enabled efficiencies in operations have
helped Townhouse to outperform
traditional players in this metric.
3. Return on Capital Employed (ROCE)
Another industry metric is the Return Store Level
Store Return
level on Capital
Return Employed
on Capital (2018)(2018)
Employed
on Capital Employed which measures 50-55%
a company’s profitability and efficiency
with which its capital is employed. ROCE
is calculated by dividing the hotel’s
EBITDA by the capital employed which
is calculated by subtracting the current
liabilities from the total assets. A high
ROCE is an indicative of high profits with
~12%*
minimum funds employed. Most of the
traditional hotels in India including the ~5%
mid segment, are asset heavy. A high

proportion of owned or leased hotels
keeps their capital employed high or
lowers their EBITDA due to the pay out * The ROCE for Lemon Tree is for stable hotels (3 years or older)
of rent. These operating models also ROCE- Return on Capital Employed (EBITDA at store level/ Capital Employed
force the hotels to incur high repair and

Source: Secondary Research; RedSeer Analysis
maintenance costs. The decision to

carry out most operation in house also (older than 3 years), toddler hotels
increase the burden of employee benefit (between 1-3 years) and Infant hotels
which forms a major component of hotel (less than 3 years). In FY 2018, the ROCE
expenses. The average ROCE (calculated at the hotel level for adult hotels was 12%
at the company level as EBITDA/Capital while that for infant hotels was -1% and
Employed) for Lemon Tree in FY2018is toddler hotels were in between at 6%.
~12% and that for Ginger was ~5%. This difference is primarily owing to the
high occupancy rate and operating profits
ROCE varies as a hotel stabilizes. For enjoyed by adult hotels. A point to be
example, Lemon Tree has divided its noted here is that Lemon Tree calculates
hotels into three categories- adult hotels its ROCE at the hotel level as (Hotel level
Increase in Earnings for the owner/ asset partner
Increase in Earnings for the owner/ asset partner
Earnings before contract with brand
Earnings after contract with brand
~3.5x
~2x
RoI is for property owners who are in a management contract with hotel brands
Source: RedSeer Analysis
EBITDAR- lease rentals)/ Capital deployed brand affiliation as this helps them increase
for operational owned and leased hotels. occupancy and reap the benefits of the hotel
Hotel level EBITDAR measures hotel level network for procurement and operational
results before lease rentals, debt service, efficiency.Customers know the OYO brand
depreciation and corporate expense of and would prefer staying in a property
the owned/ leased hotel.OYO Townhouse branded as OYO rather than a non-branded
is able to outperform the industry in this economy/ mid segment property. Given the
metric owing to have high profitability high operating profit of OYO Townhouse,
with minimum capital employed and high the incremental earnings of the property
operational efficiencies that allow the ROCE partners are higher in comparison to the
to be in the range of 50-55%. incremental earnings of property owners
who affiliate with traditional mid segment
Return on Capital Employed can also be
hotels like Ginger and Lemon Tree.
calculated for the owner of the property or
partners in case of a management contract.
Unbranded independent hotels benefit from
To summarize capabilities:
Key Metrics of Key Players- Summary

Key Metrics of Key Players- Summary
Capabilities Comments
A robust distribution channel and good

services at a cost-effective price have
Occupancy 65-70% ~75% ~90%
helped the Oyo achieve high
occupancy rate
Despite a low ADR, Oyo has a RevPAR

of ~USD 41 as compared to ~USD 46
RevPAR ~USD 28 ~USD 46 ~USD 41
for Lemon Tree. This is because Oyo
enjoys a high occupancy rate
A high occupancy leading to a high

RevPAR and technologically enabled
GOPPAR (annual) ~USD 900 ~USD 2800 ~USD 3700
efficiencies in operations enable Oyo to
maintain a high annual GOPPAR
Due to an asset light model coming from

its choice of operating model, Oyo is
ROCE ~5% ~12% 50-55%
able to achieve high profits with the
minimum capital employed
Well developed capabilities and an asset light

model enable OYO Townhouse to maintain a high
occupancy and a low gross profit leading to a high
return on capital employed
THE
CONSUMERS’
PERSPECTIVE
A success of a hotel brand is not only they are with Oyo Townhouse, Lemon Tree
dependent on its capabilities and operational and Ginger Hotels, RedSeer carried out a
efficiencies but also on how the brand is survey of a random sample of travellers
perceived by the customer. who have stayed in at least one of the three
hotels. Questions like preferred factors at
According to a report published by UBS
the time of hotel selections, essential vs
Evidence Labs, OYO was the second most
good to have amenities and motivations to
popular hotel brand in India after Taj
shift brand preference were asked and some
among business and leisure travellers. To
of the key themes that emerged are:
understand a traveller’s general expectations
from a mid segment hotel and how satisfied
Top factors for hotel Top

selection (% of
factors fortravellers)
hotel selection (% of travellers)
% of travellers who selected factor as most preferred
Location & Accessibility 41%
Price 35%
Rating & Reviews 17%
Brand Affiliation 5%
Loyalty Program 2%
1. Survey Question- Rank the following factors in the order of your preference when choosing a hotel?
2. Traveller preferences for mid-segment hotels specifically
3. Only % of travellers who selected each factor as rank 1 are represented
Location scores over price

When asked to rank the given factors in order of their preference while booking a hotel,
41% of the respondents said that location and accessibility was the most important factor
for them while 35% said that price was the most important. Among the options provided,
only 5% and 2% of the respondents gave the top rank to brand affiliation and loyalty
programs respectively.
High speed internet is a must
Another important indicator of traveller service, complementary toiletries,
expectation from mid segments hotels television and laundry services must be
is to understand what according to them provided in hotels that fall in the mid
are facilities that must be provided by this segment category. However, facilities
category of hotels. Majority of travellers like weighing scale, hair dryer, concierge
who have stayed in OYO Townhouse, services, study table and electric kettle
Lemon Tree and/ or Ginger Hotels believe would be good to have but are not
that facilities like internet, restaurant necessary.
within the hotel premises, 24 hr room
Essential vs Good to have amenities (% of travellers)

Essential vs Good to have amenities (% of travellers)
Essential Good to have

Internet 95% 5%
Restaurant 81% 19%
24hr room service 79% 21%
Complimentary Toiletries 76% 24%
Television 73% 27%
Laundry 50% 50%
Fridge 49% 51%
Tea / Coffee 48% 52%
Bathroom Slippers 48% 52%
Electric Kettle 46% 54%
Study Table 40% 60%
Concierge Services 30% 70%
Hair Dryer 28% 72%
Weighing Scale 5% 95%
• Survey Question- Which of the following features and amenities are essential for your stay and
which of these would be good to have in a mid-budget hotel?
• Traveller preferences for mid-segment hotels specifically
Half of the travellers are loyal to a brand
Although affiliation is not the top most (at the same price) or better prices. Of
criteria when booking a hotel, 47% of the travellers who said they would shift
the respondents said they preferred to their brand preference for better prices,
stay in a particular hotel chain whenever 58% said that a price difference of USD
possible. Being a representative of a 15-30 would make shift and 33% of the
highly price sensitive customer group respondents said that even a difference
that focuses on value for money, top two of less than USD 15 would make them
reasons for respondents to shift brand shift preference.
preference were improved quality rooms
Reasons to shift brand preference (% of travellers)

Reasons to shift brand preference (% of travellers)
4% 8%
12% 21%
53%
58%
47% 63%
33%
No Yes Better prices Better quality of rooms < USD 15 > USD 30
Good network of hotels Office decides USD 15-30
Do you prefer a specific What will make you shift If better prices, then how
hotel or chain of hotels? your brand preference? much per night price
difference will make you shift?
1. Traveller preferences for mid-segment hotels specifically

OYO Townhouse leads in booking experience and is considered
value for money
Finally, the travellers were asked about a seamless booking experience. Its
their experience with OYO Townhouse, operational expertise gained through
Lemon Tree and Ginger Hotels. OYO Rooms has helped Townhouse to
Respondents were asked to rate the offer an overall pleasant experience
hotels they had stayed in on parameters that translates to value for money for
like booking experience, facilities, value its users. Falling in the higher range of
for money, etc. On comparing various mid segment hotels, Lemon Tree offers
parameters, OYO Townhouse is the clear a more comfortable stay and better
winner in booking experience, offers & facilities to the travellers. Ginger Hotels
discounts and value for money. Despite on the other hand ranks lowest among
starting operations only recently (2017), the three hotels.
OYO Townhouse has successfully been
able to leverage its technology to offer
Parameter Rating (Average score)
OYO Townhouse Lemon Tree Ginger Hotels

6 6.5 7 7.5 8 8.5 9
Booking experience
Value for Money
Offers & Discounts
Room Amenities
• Survey Question- On a scale of 1 to 10 rate the hotels on the following parameters.

• The rating is the weighted average of the individual scores given by travellers
GROWTH
AND FUTURE
TRENDS
With the demand supply gap expected to After successfully establishing itself
remain high in the mid segment, existing in the Indian hospitality space through
hotel chains will increase supply and new OYO Rooms, OYO has brought the mid
chains will emerge. This rapid expansion segment category at an interesting
will be facilitated by opting for an asset point. Through a strong proposition and
light model. Lemon Tree has ~3000 workforce capability OYO Townhouse is
rooms or 29 properties in the pipeline able acquire property from initiation to
till 2021. Out of these 29 properties, closure and transform properties faster
21 are through management contract. than the industry average. Being able to
Ginger Hotels too plans to expand to leverage OYO Rooms’ strong distribution
have 100 hotels in its portfolio by 2022 capabilities, Townhouse is able to ramp
mostly through management contract. up to 90% occupancy in less 45 days. All
Like Ginger and Lemon Tree, most hotels this has been made possible through
in the mid segment are branded for its proprietary technology that plays a
business travellers. This too is expected crucial role in not only in customer delight
to experience a shift in the coming but also better supply addition and
few years. After having established a transformation, property management
reputable brand name, most of the mid and operations management. OYO
segment hotels are expanding into the Townhouse’s pace of brand building
leisure category. Out of the 29 hotels and it’s product/business model has
in Lemon Tree’s pipeline, over 65% are enabled it to race ahead and build a very
in leisure locations like Goa, Rishikesh, strong pipeline and acquisition rate of
Gulmarg, Mussoorie, Coorg, Shimla, etc. 800+ rooms, per month, which will see
Ginger has also expressed their intentions it become the largest mid segment chain
to have 40% of its upcoming properties in
leisure destinations.
very soon, probably less than a year’s toiletries, combs, hygiene products and
time. OYO Townhouse is also expanding mosquito repellents which helps it keep
internationally and has recently set up a its operating expenses minimum. In the
Townhouse in London. following few years it will be interesting
to see the traditional mid segment chains
Cognizant to the capabilities of OYO
further innovate to improve distribution,
Townhouse, players in the mid segment
turnaround and operations to maintain
are focusing on expanding their network
their stand in the market.
and optimizing operations. Ginger hotels
for example has self-check-in kiosks,
a limited a la carte menu, vending
machines for hot and cold beverages
and packed snacks and a separate
vending machine for other things like
OYO Townhouse in London
About the Authors
Anil Kumar is the Founder of Redseer Consulting. He has been part of

engagements in Internet, Private Equity, Retail CPG and Healthcare among
others. He specialises in growth and investment strategies. Anil is a believer of
the data-driven approach in solving business problems. His consulting approach
leverages Data IP, sector expertise and the client’s core hypothesis. He can be
reached at anil@redseerconsulting.com
Education
Anil Kumar
He holds B.Tech from IIT-Delhi
CEO & Managing Partner
Ujjwal is an Engagement Manager at RedSeer. He is a big believer in the power

of technology to disrupt the status quo. He specializes in due-diligences
especially in the consumer internet space. Prior to joining RedSeer, Ujjwal co-
founded and exited a healthcare start-up. He can be can reached at ujjwal@
redseerconsulting.com
Education
He is an IIT Delhi alumnus

Ujjwal Chaudhry
Engagement Manager
Raveen has over two years experience in the oil & gas, healthcare and
hospitality sectors. She has supported multiple clients in user acquisition
strategy, cost optimization, need-gap analysis and customer engagement. Prior
to RedSeer, Raveen worked with a leading oil & gas consulting firm. She can be
reached at raveen.anand@redseerconsulting.com
Education
She hold B.A. (Hons) Economics from University of Delhi and

Raveen Kaur Anand
an MBA from Babson College
Associate Consultant
Notes
Notes
Disclaimer
While we have made every attempt to similar damages, even if advised of the
ensure that the information contained possibility of such damages.
in this report has been obtained from
reliable sources, Redseer consulting is not The information contained in this report is
responsible for any errors or omissions, intended solely to provide general guidance
or for the results obtained from the use on matters of interest for the personal use
of this information. All information in this of the reader, who accepts full responsibility
report is provided “as is”, with no guarantee for its use. The application and impact of
of completeness, accuracy, timeliness or laws can vary widely based on the specific
of the results obtained from the use of facts involved. Given the changing nature of
this information, and without warranty of laws, rules and regulations, and the inherent
any kind, express or implied, including, but hazards of electronic communication, there
not limited to warranties of performance, may be delays, omissions or inaccuracies
merchantability and fitness for a particular in information contained in this report.
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extent substitute for the independent is provided with the understanding that
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taken in reliance on the information in this
report or for any consequential, special or

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Room for

We are the largest home grown advisory

Clients 200+ Engagements Employees 150+

90%+ Have advised funds on Leadership position in

of Indian Online GMV is $23Bn+ Indian

Strong vertical focus across

The mid segment category is changing

Snapshot of the industry

3.7% ~2.5 Mn1 ~65 %2 ~USD 643

1. RedSeer Analysis: Bottom-up approach

Upscale hotels - or Mid segment hotels - Economy hotels - or

Categories by level ofbyservice

Economy Hotels Upscale Hotels Mid Segment Hotels

Sources: RedSeer Analysis

Total room inventory in India (2016-2018)

~2.45 Mn ~2.54 Mn ~2.64 Mn

90% 89.5% 89%

Chain affiliated hotels have been growing 3x times

Total mid segment chain affiliated inventory in 2018

Total room inventory in the

Sources: RedSeer Analysis

The pool of domestic travellers has increased in the past

The second reason for rising domestic tourism is the

The third reason is the expansion of business activity in Tier

Before the GST, total taxes on hotel rooms roughly came to

International tourism growing at over 10% a year and domestic

Market size of chain affiliated hotels in the mid

Market size of mid segment hotels in India Growth drivers

Hotels irrespective of segment, largely quality due to the prominent involvement of

Typical responsibilities of the hotel/brand in various operating models

Lease & License

Franchise Agreement Brand owner get a

Sources: RedSeer Analysis

Advantages and disadvantages to the operator in various operating models

• Faster growth of the brand • Obligation to pay rent even in case

• Operational experience of atleast • Lack of flexibility in decision making

• Brand growth with minimum

Sources: RedSeer Analysis

Hotel chains like OYO, Treebo and Fab have

Key players in the mid segment hotels category (2018)

# of Properties* 48 hotels 42 hotels 18 hotels 35 hotels

Owned / leased Owned / leased Joint venture between Leased

Oyo Townhouse profile

Target Audience Current Properties Facilities Expansion Plans

Rapid expansion of Oyo Townhouse since launch in

Split of operating models and velocity of growth of rooms (2018)

~13% ~16% ~55%

Key Features of an OYO Townhouse property

The common area offers tea,

Source: Secondary Research

The velocity of growth of rooms for OYO Townhouse

1. Property Turnaround Time

Property Turnaround Time

Cost benefit in procurement with increasing number of rooms (illustrative)

outsourced* outsourced outsourced outsourced

Inhouse Inhouse Inhouse outsourced

* F&B operations is outsourced where as services are inhouse

Staff to room ratio (2018)

~0.67 ~0.85 ~0.31

31% 12% 57%

“Outsourcing of staff is a growing trend. Hotels are

The split for other hotels in the mid segment

Distribution Channels (2018)