One of the big hospitality stories of 2018 concerned a 24-year-old entrepreneur from India, Ritesh Agarwal, who turned a simple idea into a five-billion-dollar business within its first five years. Reports of this incredible teenage visionary flooded the media as investors flocked to support his OYO brand, allowing the company to expand beyond its original Indian borders and become a major industry player.
Most of the stories began with Agarwal as an 18-year-old college dropout, and describe his experiences staying in a series of cheap, run-down, and ultimately disappointing Indian guesthouses, before hitting upon the idea of a booking app offering rooms in repaired properties that could guarantee a certain quality standard.
As one report explains, OYO is now India’s second-largest start up after the company which owns Paytm, and the largest hotel brand in India. It goes on to describe the Indian market as “chaotic” and worth 4.5 billion dollars – and this is a common theme when discussing India, or parts of the world we perceive to be at a similar level of development.
India is often described as chaotic, just Switzerland is orderly, and Japan is technologically advanced. We know these ideas are stereotypes, yet we are all too easily persuaded that they are not far from the truth. A hotel brand with its roots in budget accommodation in India can immediately evoke images of squalor, but that world in many people’s imaginations is no longer the one that exists in reality.
To learn from Ritesh Agarwal and OYO, it is worth first looking at the work of the late Hans Rosling – a Swedish health professional who made it his mission to show decision-makers in the West just how alarmingly misguided their perceptions of other countries really are. He effectively demonstrated through data that the images many of us have of distant lands are significantly outdated. Our ideas of an Indian budget hotel room (and the Indian customer in it) often more closely match 1980 than 2018 – and this goes for well-educated people who’ve been to India (stayed at an Oberoi) and seen something of the country for themselves. And in case we thought it might just be Westerners thinking themselves superior to the “developing world” (itself a term losing relevance), the perceptions of Asians or Africans about the rest of the world are no more accurate.
In short, Indians travel more than you thought, demand more from hotels than you thought, spend more than you thought, and are part of a huge and growing market. Ignorance of that market will prove very costly. The same goes for Bangladesh, Pakistan, Kenya, Nepal, and so forth. In five years’ time the same story will re-appear, only the protagonist will be Nigerian, or Ethiopian.
It is therefore no surprise that a huge opportunity could be found in India’s unbranded budget sector. It just took someone on the ground to find it – someone who saw the situation as it actually was. The development of OYO has now shifted to a franchise model, where the company provides standardization and branding to hotels, typically taking a month to renovate a property so it meets the requirements and assures customers they will receive what they expect. With repeat business running at 90% and nothing spent on advertising, the model has proved successful. As a result, India’s budget travelers (and once again, they’re not as low-budget as you’re thinking) now have more than 10,000 OYO properties to choose from in around 160 cities.
The next step is overseas expansion, and OYO is already serving Indians traveling to Nepal and Malaysia, as well as establishing a significant foothold in China where 170 cities have at least one OYO hotel. Indonesia is another market, with the UK to follow, and Agarwal expects OYO to be the world’s largest hotel chain by 2023. One challenge will be the need to maintain standards, but already the company has established training hubs in India to turn out people with the IT skills or hospitality knowledge required to support the growth. Rivals exist, such as Treebo or RedDoorz, but these merely demonstrate that the concept is essentially sound. Wherever customers have doubts about unbranded budget accommodation, companies such as OYO can prosper.
As for India’s “chaotic” market, many things look chaotic when you don’t understand them – take Australian Rules Football for instance. You just need to learn the rules