Make room for branded online hotel chains

By Saumya Tewari , afaqs!, New Delhi | In Digital | October 09, 2015
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Players like Oyo and ZO Rooms seem to be transforming the budget hotels landscape in the country. A look at how they are leveraging technology to standardise the category and lure a rising number of budget travellers.

Budget hotel stays, more often than not, translate into bad experiences for travellers. However, the new crop of online, branded budget hotel chains like Oyo and ZO Rooms are relentlessly working to standardise the segment. Backed by marquee investors like SoftBank (Oyo Rooms) and Tiger Global (ZO Rooms), these players not just manage the end-to-end operations, but also train and provide technological solutions to its hospitality partners.

These chains operate on an asset-light business model, wherein the chain franchises the hotel or a portion of it. The owner continues to run the hotel. Their revenue model is similar to that of an Online Travel Agent (OTA) and they tend to take in 25-30 per cent of the room revenues.

Make room for branded online hotel chains

The market as well as the opportunity in the segment is huge. As per Google, the online hotel booking market in India will be $ 1.8 billion by 2016 and nearly 49 per cent of bookings will be for budget hotels.

Dharamveer Chouhan

Ritesh Agarwal

Dharamveer Chouhan, CEO and co-founder, Zostel Hospitality, which owns ZO Rooms, says that they have a thorough checklist before they take hotels on board. "We have an Audit app which has a 200-point checklist on which each hotel is tested - parameters like size of the hotel, linen quality, staff qualification. Once the hotel goes through the audit and the report is generated, we evaluate on which points the hotel needs to work on. Our back-end team helps the hotel owner with the costing of how much they have to invest in the property to become a ZO Rooms partner," he explains.

After going through this process, ZO's supply chain management comes into picture and orders are shipped within 48 hours to the partner hotel from its partner vendors.

Talking about the lack of standardisation in the budget hotel segment, Ritesh Agarwal, founder and CEO of Oyo Rooms, recalls that his venture started as an online booking service. But when he stayed at different hotel properties across the country, he would encounter new problems every day, including unmanned reception desks, untidy rooms and unhygienic food. That's when the concept of Oyo Rooms germinated in his mind.

"I realised that discoverability of hotels was not a problem, but predictability and trust were. I decided to take a single hotel in Gurgaon, standardise it and manage it end-to-end. I was a coder, housekeeping and sales person for that hotel for a month. Interestingly, this hotel had 95 per cent occupancy with massive repeat rates in six and a half months," he states.

Both Oyo and ZO offer hotels starting at Rs. 999; however, the price can also hover between Rs. 1500-1700. Oyo also has a premium offering priced upwards of Rs. 2000.

Agarwal claims that 60 per cent of his business, today, comes from the budget segment and 40 per cent from mid-market (premium).


Agarwal says that, globally, hospitality industry has never leveraged technology, which leads to mismanagement, leading to inferior consumer experience.

One can book, check in and check out from an Oyo Room and also order food through the mobile app. In an Oyo Room, Agarwal claims, housekeeping takes only 12 minutes to clean the room, as toiletries and stationery are kept in a bag (Oyo bag) and given to the guest at check-in.

Similarly, the ZO Rooms app shows its partner hotel's live inventory, helping them better manage their bookings. Like Oyo, the option of check-in and check-out and room service is available through the app. "With our app, hotels can see live inventory, fix consumer complaints, while consumers are able to order an extra towel or a cup of tea," Chouhan informs.

The Occupants

Apart from budget travellers, these budget hotel networks target corporate travellers, both within and outside the city. "A lot of employees who work late avoid taking a long distance cab and prefer staying at a ZO," Chouhan says.

In September this year, ZO recorded 200, 000 booked nights, 140, 000 were check-ins and the rest were future bookings. The network claims to receive 74 per cent of its bookings 48 hours prior and 50 per cent of its bookings come from the mobile app.

Oyo is present in 110 cities, while ZO operates in 45 cities. But, a major chunk of their bookings is driven by travellers in the metro cities of Delhi, Mumbai and Bengaluru.

Generalists vs Specialists

OTAs such as MakeMyTrip, Yatra and online marketplace for hotels Stayzilla list budget hotels on their platforms, but do not manage the end-to-end operations for these properties. This is where the new-age, branded hotel networks come into picture.

"Unlike a marketplace approach where the hotel once listed remains as is, we work with our hotel partners. We contribute marketing, technology, analysis of data and ensure that the hospitality service is of top-notch standard. A marketplace will never be able to invest in the technological solution when it comes to hospitality partners. Getting hotels online and ensuring online booking is a straight-forward mechanism," Chouhan asserts.

In terms of consumer convenience, an OTA tends to score over these players as it often provides travellers with customised packages and discounts on tickets and hotel combos. The chances of a traveller going to an OTA for ticket booking and to another platform for hotel booking are slim.

Both Yatra and MakeMyTrip list hotels from Oyo and ZO Rooms. However, Stayzilla does not have any listings from either of these chains. The platform claims to have over 35,000 hotels, lodges and service apartments in its database offering 800,000 rooms across 4,500 towns in India.


Oyo leads the pack in terms of advertising spends in the segment. The company recently rolled out its first advertising campaign, with spends to the tune of Rs. 50 crore, replete with a TVC. The campaign highlights the ease of booking and standard amenities that Oyo Rooms provide.

Meanwhile, ZO Rooms advertises heavily on out-of-home platforms, digital as well as social media. The network is contemplating launching a TV campaign soon.

"You can give discounts, show TV and print ads, but nothing beats word of mouth. Our customers are our evangelists, having said that, we keep evaluating media," Chouhan adds.

Here to stay...

With an evolving ecosystem, the branded budget hotel networks will continue to improve their services to lure travellers. In a bid to further expand its base, Oyo has launched rooms catering to only women, called Oyo We. ZO Rooms has launched a traveller hostel chain, called Zostel, a concept quite popular in the West.

Meanwhile, big players like Ibibo, which is an online hotel aggregator, recently launched GoStays on its mobile app as well as desktop. It aggregates unbranded budget accommodations across India. The platform is live in 72 cities, features 862 properties, translating to 10000 rooms a day.

Ashish Kashyap

"As budgets properties are gaining prominence, hoteliers in the category are enthusiastic about enhancing their services and the ones listed with us on goibibo are sure to keep a check on their metric services for better customer service," says Ashish Kashyap, group CEO, Ibibo Group.

Stayzilla, apart from hotels, provides travellers the option of home stays, much like the popular concept of Airbnb. Yatra plans to launch Travelguru Rooms.

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