Oyo hotel chain grows phenomenally in China where it has more rooms than in native India

Oyo has more rooms in China than in native India
The fast-growing Indian hotel chain Oyo has had a rare taste of success in China, while behemoths such as Amazon, Uber, Apple, and Google have struggled to penetrate the lucrative market.

Since the launch of its Chinese arm Oyo Jiudian in November 2017, Oyo has grown at a breakneck pace. It now claims to be China’s second-biggest budget hotel chain, with more than 400,000 rooms across 290 cities.

The company now has more rooms in China than in its native India, where it dominates the market with no nearest rival.

“For us at Oyo, both India and China are home markets,” Oyo’s founder and chief executive Ritesh Agarwal told This Week in Asia.

The 25-year-old college dropout, who launched Oyo while he was still a teenager, credits the success in China to his localised business strategy. Of the country’s 6,000-strong “OYOpreneurs” – as the Oyo staff are known – less than 20 speak English. Most foreign companies prefer recruiting bilingual management teams but this was never a criterion for Oyo, Agarwal said, which helped overcome major constraints.

“We entered China with the thought of how a Chinese company would run itself if it wanted to emulate Oyo, and the results are visible,” he said.

Its Uber-like business model – where Oyo acts as an intermediary linking property owners under its brand with customers – has been hugely successful in India, and Agarwal now wants to replicate it across the world.

Oyo plans to invest US$960 million on expanding in Asia over the next five years, US$600 million of which has been earmarked for China, the world’s fourth-largest tourist destination. The rest of the funds will be pumped into countries such as Japan, India, Indonesia and Philippines. There are expected to be 535 million holidaymakers in Asia by 2030, according to the World Tourism Organisation.

Oyo’s Chinese expansion aligns with the start-up’s ambitious goal of becoming the world’s largest hotel chain by 2023 – overtaking the current leader Marriott, which presently manages 1.23 million rooms.

Oyo, valued at US$5 billion, is chiefly backed by the Japanese conglomerate Softbank, while other marquee investors include China’s Didi Chuxing, Singapore’s Grab Ventures and the United States’ Sequoia Capital and Greenoaks Capital. Last month, the American firm Airbnb also injected over US$100 million into Oyo in a deal it called “strategic investment”.

Oyo says it is only scratching the surface of the international accommodation market, which it calls a US$3.6 trillion opportunity given the availability of 160 million rooms worldwide. “We are looking at the largest 15-20 markets of the world, which are characterised by fragmented inventory,” Agarwal said. “We can foresee an enormous opportunity to create a truly global brand out of India.”

Headquartered in Gurugram, a satellite town of New Delhi, Oyo operated in 10 countries – India, China, Malaysia, Nepal, Britain, the United Arab Emirates, Saudi Arabia, Indonesia, Philippines, and Japan – until April. Its portfolio radically expanded this month with the May 1 acquisition of Amsterdam-based property management business @Leisure Group for US$415 million, bringing Oyo’s global footprint to 24 countries.

Significantly, the @Leisure acquisition offers Oyo immense access to the group’s 115,000 rooms in the European market.

Japan, the home of Oyo’s largest investor, remains a key focus. It’s where the company wants to enter the residential market with Oyo Life, an apartment-rental service in which Oyo signs long-term agreements with owners and subleases to individuals for the short term, eliminating the existing middlemen of brokers.

Oyo only began its Japanese operations in early April, but it is already hungry to expand. As Japan is gearing up to host the 2020 Olympic Games, Oyo hopes to swiftly capitalise on the opportunity to dominate the market by hosting the “million of travellers” heading to the event, Agarwal said.

Oyo’s impressive performance outside India also sets a precedent for other ravenous Indian unicorns such as food-delivery service Zomato, ride-hailing firm Ola and e-commerce company Flipkart – all of which are seeking to expand overseas.

The company’s aggregator business model – an asset-light franchise, in which it does not purchase the properties, and outsources some of its management operations – is primarily technology-driven, bringing unbranded hotels under its umbrella and providing budget accommodation at rates that average US$25 a night.

As soon as a property owner signs up as a franchisee, Oyo’s dedicated team renovates the place – what Agarwal calls a 360-degree transformation – within 14 days and erects its distinctive red-and-white logo outside the facility.

Its onboarding methods and renovation strategies help owners increase their occupancy rate between 25 per cent and 65 per cent within three months, Oyo claims. In return, the company either receives a franchise fee or shares the revenue with owners.

Despite its meteoric rise, industry experts have questioned whether Oyo will be able to address the complexities that inevitably accompany any global expansion. It lost US$55 million last year, but expects to reduces losses from 20 per cent of overall sales to 10 per cent in 2018-19.

To achieve that, Agarwal desperately needs Oyo to perform well in India and China, the two countries he calls home, said a report in the South China Morning Post on Sunday.