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Unicorn hotel group Oyo curbs growth ambitions amid soaring debt

by | 25 Feb 2020 | News

Budget hotel chain Oyo is rethinking its growth. (Photo: Facebook)

After recent hiccups, Oyo has decided to slow its growth and focus more on existing properties and partners.

After a season of high-flying growth, the unicorn hotel chain Oyo recently announced a more conservative outlook for the near future, as reported by the Financial Times.

We find out what Oyo is planning and why things have changed.

Taking a step back

Oyo, the India-based hotel group, has wowed industry experts with staggering growth several years in a row.

The company even got confident enough to publicly declare its goal of becoming the world’s largest chain by 2023. This ambition has now been shelved.

According to Rohit Kapoor, the company’s new chief executive for India, the budget hotel chain will now prioritise “calibrated growth”.

Mr Kapoor conceded that Oyo’s drive to grow quickly had created imbalances in some areas of the company. He added that the management team had set a new strategy at a meeting in December.

This comes just after Oyo let go of about 2,000 staff, pulled out of 200 cities and removed more than 1,000 hotels from its platform last month. Further job cuts due to restructuring were announced for the UK and the US.

A promising start

Oyo’s proposition was unique and promising when it first started out. The company offers rebrands and renovations to independent budget hotels around the world. Once they meet the brand’s quality and service standards, Oyo promotes them on its online platform.

The company has offered some hoteliers a guaranteed income, irrespective of how many guests they attract, an offer many didn’t want to refuse.

However, after attracting a staggering number of hotels to its brand and building a portfolio of about one million rooms in 80 countries, the seven-year-old company had to slow things down.

While it looked like Oyo could oust Marriott from its position as the world’s largest hotel group in the next few years, this will move more slowly from now on.

“I have no hesitation in saying that maybe we were accelerating towards that too fast for us to be balanced,” Mr Kapoor said in a recent interview with the Financial Times at the hotel chain’s headquarters near New Delhi. “It’s OK if it happens slightly later… it’s a shift in terms of our thinking.”

Hiccups and bumps in the road

Founded by Ritesh Agarwal when he was just 19 years old, Oyo soon caught the eye of Masayoshi Son’s SoftBank, the investment firm which now owns close to half of Oyo.

In light of recent events, the hotel group has been compared to WeWork, another one of SoftBank’s protégés, which needed saving after a similar period of strong growth and growing financial challenges.

This comparison is not all that far-fetched. In the twelve months leading up to March 2019, Oyo’s losses skyrocketed by almost 600% to $335m with little hope that the primary markets India and China would become profitable before 2022.

Mr Kapoor labelled the comparisons with WeWork, whose own $47bn valuation was overthrown by investors before its planned IPO, as unfair. “The world may choose to compare,” he said. “There’s nothing similar about our businesses. Absolutely nothing. I think we can do without this attention.”

But soaring losses and unfair comparisons aren’t Oyo’s only concern. The company recently faced a growing number of complaints from hoteliers claiming Oyo didn’t meet agreements or didn’t pay its fees.

In his interview, Mr Kapoor emphasised that Oyo was taking steps to mend relations with unhappy hoteliers, and said the number of complaints reported by the media was overblown.

On top of this, Indian competition authorities launched an investigation into allegations that Oyo was working with the booking platform MakeMyTrip to stifle their competition. Both companies have denied this.

ABOUT THE CHAIN

 

OYO is India’s largest branded network of hotels founded by Ritesh Agarwal, India’s first graduate of the Thiel Fellowship, a program started by Paypal founder, Peter Thiel.

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