According to the latest Google-Temasek-Bain & Co study, online travel in Southeast Asia grew to USD 34.4 billion in 2019, up from USD 19.4 billion in 2015. The rise of the budget hotel segment has been in the limelight as it offers affordable accommodation aimed at budget-conscious travelers.
Where the budget hotel space is concerned, it looks like Indian hotel chain OYO Homes & Hotels is catching up with the competition. It has been persistently growing its presence in Southeast Asia, and Indonesia in particular, in the past year.
The startup entered Indonesia in 2018 with an initial investment of USD 100 million and fewer than ten employees. Today, OYO claims to be a leading hotel chain in the country with a presence in more than 100 cities across the country. Moreover, OYO recently entered the long-term housing rental segment in Indonesia by launching OYO Life, and the company said it is open to exploring more opportunities within the accommodation segment in the future.
KrASIA recently spoke to Mandar Vaidya, OYO’s CEO for Southeast Asia & the Middle East, about the firm’s recent investment in Indonesia and its business strategies.
KrASIA (Kr): We’d like to clarify OYO’s PR statement regarding its investment commitment in Indonesia. In September OYO said it was investing USD 100 million in the country but a recent press release suggests that the investment is actually USD 300 million. Could you please explain?
Mandar Vaidya (MV): Yes, the number has changed and it signifies our increased focus on Indonesia. When the first statement was out, we certainly looked at Indonesia as an important market but we weren’t clear about how much of a priority it would be. Now it has become very clear to us that Southeast Asia in general, and Indonesia, in particular, is going to be one of the focus markets of OYO’s business globally.
In that context, we want to co-invest more aggressively with our partners. When we start working with a new partner, the first thing we do is to inspect the property and see how much improvement it needs. We use data to see what consumers in the country want and how the properties can accommodate those needs. We always tell partners that they need to dramatically improve service quality, and for that, we’d invest money in them as well.
So to answer your question, we are now committed to investing USD 300 million in Indonesia as we believe that the country requires much more focus than we previously expected.
Kr: Considering that OYO has tripled its investment commitment within several months, is it likely to increase it again within the next one or two years?
MV: The investment commitment is for the foreseeable future. What we do is that we make an investment at several levels. For hotel partners, the investment depends on the size of the hotel, the possibility of business, and most importantly what the hotel requires [to attract consumers]. When we get closer to a certain number, let’s say after we spend 150 or 200 million, then we’d review and maybe who knows, if needed, we might restate [the investment] again.
Kr: The competition between budget hotel chains is fierce in Indonesia. How are you positioning OYO among the competition?
MV: Interestingly, we started operations in Indonesia just 15 months ago. We were catching up with the competition quickly and we have overtaken them. We actually began at the bottom and we came out on top, as our capital outlays grew.
What is very important for us is that we closely monitor our guest experiences. If you look at the customer reviews on various websites, you’ll see that we are generally better than our competitors. And that is what makes us confident. We believe that as long as our customers are happy, they’ll keep coming back to us, hotel owners will do better business, and eventually, we’ll have more partners who want to collaborate with us. The cycle works very well. We started very small with only two hotels and ten employees in 2018. Now we have about 1,700 hotels, 1,100 employees, and around five million customers in Indonesia.
Kr: OYO now has a presence in more than 100 cities in Indonesia. What are your strategies for Indonesia going forward?
MV: Our core way of doing business is the same in every market. There are three strategies; the first one is that we want to continue localizing our business. Although OYO is a global company, our hotels are actually local businesses that are a part of the local community. We understand that one part of Jakarta might be different from another part, let alone Indonesia from China, or India. Therefore, it is important for us to find the best local people who understand what local businesses and communities need from our hotels.
Secondly, we are really a data-driven company. We understand what consumers find valuable based on data. As the business grows bigger, we rely more on the data and utilize it to help hotel partners improve their quality and services. So we’ll invest more money on data strategy. And finally, we are continuously improving our online platforms because we want to satisfy all types of consumers. Our app provides a one-stop solution for wherever you’re going and across different kind of purposes, therefore we ensure that our platforms really penetrate well.
Kr: What is OYO’s path to profitability like?
MV: I think the good news about OYO’s business model is that we attract customers at the right price point, and as far as unit economics are concerned, we have already been making money. A path to profitability as a global company is something that we are keeping confidential. But if you consider our unit economics very robust, then it is simply a matter of how we can choose when to grow, how much, in which geography, and then we can actually toggle the path to profitability.
Fundamentally, we are committed to building a very profitable company. However, we are equally clear that we want to continue to invest beyond growth because we are still growing in many markets. In terms of unit economics, we make money as do our hotel owners. I can tell you that we are in very healthy condition.
Kr: Many tech decacorn companies are considering IPOs now, as an effort to raise more funding and gain profits quickly, are you going to follow that path?
MV: As you know we raised USD 1.5 billion in the last funding round and we’re valued at USD 10 billion now. Funding is a topic that a select group of individuals within the company look at closely to ensure the company can grow in a robust fashion. But I can tell you that for right now, that is not a big concern on my mind as we’re focused on business development.
The way we operate is that we have managed to stay elite from a funding aspect for the last few years, and I’m sure we’ll continue to deploy the same policies in-state and going forward. But again, by and large, our main concern is to further accelerate the business rather than looking for more funding.
Kr: Do you have plan to enter new markets in Southeast Asia?
MV: We now have a presence in five countries: Indonesia, Malaysia, Vietnam, the Philippines, and earlier this month, we announced formally that we are now available in Thailand. Today, OYO is already available in 13 cities in Thailand with 8,000 rooms and the number will continue to grow.
For now, we feel that we already have taken a big bite out of Southeast Asia’s apple. So we want to go as deep as we possibly can in these markets. We don’t rule out the possibility of going for more markets, but in the immediate future, we’ll focus on strengthening presence in existing markets.
This interview has been edited for length and clarity.