OYO’s growing faster overseas than it is in India—but it needs to watch out

Overseas expansion
Overseas expansion
Image: Reuters/Anushree Fadnavis
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Indian hotel chain startup OYO appears to be betting on the classic adage that it’s never too fast to expand and grow a business.

On April 01, the Gurugram-based company said it was stepping into Japan under a joint venture with its investor, SoftBank. “We recently announced the launch of our beautiful living spaces in Japan, starting with the housing rental business, OYO LIFE,” Ritesh Agarwal, group CEO and founder of OYO, said in a press release. “Now, through our new entity, we will be focused on creating unique hospitality experiences for both domestic and international travelers in Japan.”

Beginning with Malaysia in 2016, the six-year-old Indian hotel chain startup has moved into some 10 countries, including China, Nepal, the UK, the United Arab Emirates, Saudi Arabia, Indonesia, and the Philippines.

Expanding footprint

OYO is among just a handful of Indian business-to-consumer internet startups that have expanded outside the country. It’s quite a feat at a time when global businesses such as Amazon and Uber are giving Indian players a tough competition on their home turf.

In addition, OYO has managed to show an encouraging performance in a tough market like China, which even American behemoths such as Uber, Google, Amazon, and Apple have either given up on or continue to struggle with.

“Every country where we have got into with OYO hotels’, the company has managed to increase the occupancy from 25% to 65% in less than three months on an average. We have reported consistent occupancy levels of 90% plus,” an OYO spokesperson told Quartz.

Over a year into its China venture, OYO now reportedly boasts of more inventory there than it has in India. It operates there across more than 290 cities with 320,000 exclusive rooms and 7,000-plus buildings. In India, it has over 8,700 leased and franchised buildings and over 173,000 rooms across 259 cities.

“OYO’s aggregator model works well overseas as a lot of good properties (hotels and homestays) are available there. Plus, the company will also be using its partner Airbnb’s properties, boosting its business further,” said Saurabh Sharma, co-founder and director at online portal Travel Unravel Holidays. On April 01, media reports said California-based home rental platform Airbnb had invested around $200 million (Rs1,370 crore) in OYO, which was so far seen as its primary rival in India.

Early success

Back home in India, OYO still has massive headroom to grow. It still holds a mere 4.3% share of the overall domestic market of four million hotels and guest house rooms, OYO told Quartz in an email.

Globally, too, OYO has only scratched the surface with over 515,000 exclusive rooms in 10 countries. This is less than 1% of the world’s $3.6 trillion—or around 160 million-room—accommodation-market opportunity, according to OYO’s own estimates.

It is now looking at the largest 15-20 markets globally where the industry is still fragmented, an OYO spokesperson told Quartz.

The one thing that works in OYO’s favour is that it is backed by some marquee global investors, said Saurabh Shrivastava, chairman of Indian Angel Network. Besides Japan’s Softbank, these include Chinese ride-hailing major Didi Chuxing, Singapore-based Grab Ventures, and US investors Sequoia Capital and Greenoaks Capital.

“It can leverage the local expertise and knowledge of its business partners to start and establish its footprint in markets outside India. OYO is doing fairly well in India. So if they can replicate this standard business template, they can succeed overseas as well,” Shrivastava said.

Which countries OYO will expand into next is still anybody’s guess as it is difficult to identify a trend in the company’s expansion so far, particularly in terms of the markets or order in which it goes about launching its operations, experts said.

“A closer look at OYO’s expansion will reveal that there is no particular pattern to the company’s choice in picking up markets for expansion,” Aditya Agarwal, head of mergers, acquisitions, and strategy at online travel firm Cleartrip, told Quartz. “However, what is evident is that OYO’s aggressive expansion is guided by its ambition to become the world’s leading hospitality company in the next few years.”

Challenges ahead

As the company makes inroads into more markets, it will struggle to manage the accompanying complexities that come in with organic growth and acquisitions. Among other things, it will need to focus on quality and location, ensure standardised services, and safety of guests.

“Every country has a different culture and it’s very important for a player to have an in-depth customer perspective, knowing their tastes and preferences. Beyond anything, it’s important to know how the prospective market itself will respond to your product,” said Aditi Balbir, founder of hospitality firm V Resorts. Balbir cites the difference between Japan and China on one hand and the US on the other—customers in the former countries like being offered service while Americans prefer self-service.

In addition, OYO, like most other Indian tech startups, faces mounting losses that will likely rise further as it expands into newer markets. For the financial year ended March 2018, OYO reported a net loss of Rs360 crore.