Oyo now gets over 90% of revenue from hotels under franchise model, says CEO

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Bengaluru: Oyo (Oravel Stays Pvt. Ltd) is now generating more than 90% of its revenue from hotels that it has leased from owners, chief executive officer Ritesh Agarwal said.

The company, which started as a hotel aggregator, said last month that it will stop aggregating rooms and instead operate hotels under the Oyo brand. It had started leasing hotels in 2016.

Agarwal said that Oyo is now adding 10,000 rooms or close to 500 hotels every month under its franchise model. The shift in its business model has also allowed Oyo to raise its commission by 5 percentage points to around 22%, Agarwal said. Earlier, under the aggregator model, Oyo charged 18% as commission from hotel owners every month.

Oyo said that all hotels under its aggregator model would be shifted to its franchise model in December 2017. It currently has around 60,000 rooms under the fully managed franchise model, and another 10,000 rooms under the earlier aggregator model, which the company plans to bring under the franchise segment in the coming months. Agarwal said that all hotels are now operating at a 75% occupancy rate on an average.

Its Oyo TownHouse category, launched in January 2017, was one of the company’s strategies to turn into a fully managed and exclusive hotel chain. At the time of launch, Oyo said that the TownHouse hotels are mostly aimed at millennial customers and local residents who will be able to use the property as an alternative workspace. TownHouse hotels also have retail stores, cafes and merchandise for sale.

“For the customers, TownHouse may look like just another Oyo branded hotel chain. But for us, Townhouse was a different category at a very different price point, primarily catering to a specific consumer category, with a better location in the city,” Agarwal said during a press meet.

Moving to a franchise model had very little impact on the pricing of rooms, and according to Agarwal, the budget category of rooms priced Rs1,000-1,500 per night will continue to remain unchanged. The budget Oyo Rooms category under the franchise model will now cost anywhere between Rs1,000 and Rs2,500; the Oyo TownHouse category has a price range of Rs2,500 and above; and vacation homes under the Oyo Homes category will cost Rs1,000 per room.

The shift to a franchise model also allowed the company to better manage its hotel inventory and speed up the time taken to sign agreements with new hotel partners. Typically, getting a hotel owner to sign a franchise agreement would take months, but Oyo claims to bring down this time frame to just five days.

The company makes use of an in-house mobile application and software suite named ORBIS, which lets the potential hotel partner to estimate revenues, gross operating profits and other expenses once the property is brought under Oyo’s brand.

“If the owner is okay with the numbers, a civil engineer from Oyo visits the hotel and estimates how much capital expenditure is required to run the hotel. At the end of the fifth day, the agreement is signed using the ORBIS app, rather than the 50 pages agreement on paper with six lawyers sitting across the table and making negotiations,” Agarwal said.

After the agreement is signed, Oyo’s designers and architect put together a renovation plan and according to Agarwal, the company is able to renovate the entire hotel property in three to 14 days depending on the size of the property.

Apart from this, Oyo is also able to hire fewer hotel staff to take care of overall operations. Agarwal explained that traditional hotel chains appoint one floor manager to manage around 20 keys (rooms). But Oyo is able to put more than 100 keys or rooms under one floor manager’s control.

“We use data science to simplify the floor manager’s work. Instead of checking up on every hotel every day, the auditor instead checks 30% of the hotel every day, based on rooms that have a history of bad ratings,” Agarwal said.