The PR machines at the Asian value brands are working overtime; development articles appear almost daily on the growth, and size of the business and new investment or partnerships seem to be forming every week. OYO and RedDoorz are developing at an astonishing rate, threatening to have a portfolio mass to rival or overtake the very largest hotel brands establish 100-years ago. The growth of these deeply financed 2013 and 2015 start-ups might have been dismissed as a limited geographical niche related to the fragmented structure and quality leniency of specific sectors of the Asian accommodations market, however, OYO is aggressively expanding in the USA, Germany, UK, and Saudi Arabia.
These value brands operate mainly on franchise and lease models, and occasional strategic acquisition, with a broad tolerance for accommodation properties of differing quality and configuration, contracted under a single vivid brand banner (always red). The companies require basic soft standards throughout the units such as the provision of clean linen, reliable internet, complimentary toiletries and mineral water. Unlike the global hotel brands, interior design is secondary, standard signage and economically feasible conversion items such as branded bed runner and decorative pillow (again, always red) set the standard. The companies may offer some initial capital input to meet the brand criteria; they provide progressive data-driven systems (inventory-management, revenue-management and customer-relationship management), access to corporate accounts, basic training in areas such as safety & hygiene, 24-hour support & customer service, and economies of scale. These properties previously operated in a fragmented market of small independent hotels, guesthouses, hostels, and non-standard accommodation concepts that could not meet the configurations of global budget brands, yet make up over 80% of the global hotel supply.
Besides the opportunity provided by the substantial supply market ignored by the established hotel groups, the business model offers several other advantages. The focus purely on the basics in standards rather than frills in design, do not require lengthy and complex Product Improvement Plans (PIP)’s, dramatically reduce owner costs and conversion time as well as simplifying the basis of contracts, reducing negotiation time from averages of over 9-months down to a matter of a couple of weeks. Being technology companies the background and skillset of these Asian Value Brands is not rooted in service but rather distribution, so their systems and resources gear to countering the OTA’s and enhancing direct business.
With significant investment required for building the consumer brand, driving distribution to direct channels and maintaining property quality in dissimilar hotels, the model of growth for these soft budget hotel chains is highly capital-intensive. In a similar way to Amazon and Uber, huge investments are being ploughed into this growth, with so far no or limited profitability; the sustainability is still to be absolutely proven, but the numbers are nevertheless remarkable, threatening to change the face of global hospitality.
OYO
OYO main website. HQ Address: 9th Floor, Spaze Palazo, Sector 69, Gurugram, Haryana 122001, India
OYO, based in India, claims to be the world’s fastest-growing company & world’s 6th largest chain of operated hotels, homes, managed living and workspaces with a portfolio of more than 850,000 rooms / 23,000 hotels in over 800 cities in 18 countries. OYO started solely as an aggregator in 2013 but has evolved into a hotel operator, offering franchise and lease contracts, and in August 2019 stepped into international ownership by acquiring the 657-room Hooters Casino Hotel in Las Vegas, estimated to be around $135 million, to be rebranded the OYO Hotel & Casino Las Vegas.
The company under the parent Oravel Stays Private Limited is backed by global investors, including the SoftBank Group, Lightspeed India, Sequoia Capital, Greenoaks Capital, Hero Enterprise and China Lodging Group estimated at approximately US$1.7 billion. In April 2019 it was announced that Airbnb had been involved in a strategic $100 – $200 million Series E financing round. Reports suggest that the company is considering an IPO at a value of between $10 and $18 billion. The IPO would be made outside of India, as OYO is not yet profitable.
OYO offers branding, rate strategy management and inventory allocation, pricing, revenue management, training of staff and day-to-day operations overseen by an assistant general manager deputed for the purpose. In several cases, OYO has also invested CapEx to help upgrade and renovate the property. The company has stated that it frequently provides financial support to asset owners to
RedDoorz
RedDoorz main website. HQ Address: Commeasure Pte Ltd 151, Chin Swee Road #07-12, Manhatten House, Singapore 169876
Based in Singapore, the RedDoorz portfolio of over 1,200 properties so far has a growth strategy focused solely on Southeast Asia. As of September 2019 more than two-thirds of listed properties are in Indonesia. Additionally, there are hotels in Singapore, the Philippines and Vietnam. RedDoorz claims to add 200 new hotels each month and plans to enter two more countries by 2020, and valuation of over US$1 billion by 2022.
RedDoorz has raised $140 million in financing through over 3 rounds of investment and has investor including Sushquehanna International Group, World Bank’s IFC, InnoVen Capital, Jungle Ventures, DeepSky Capital, FengHe Group, Hendale Capital, Qiming Venture Partners, Asia Partners, Rakuten Capital and Mirae Asset-Naver Asia Growth Fund.
RedDoorz boasts a guarantee of room nights and benchmark a consistent of 80% occupancy, through a revenue-sharing policy and in most cases, look to upgrade the property’s physical conditions. They provide staff training, amenities, logistical support, and round-the-clock customer service support.
Other Similar Value Brands Concepts
ZEN Rooms: Launched in 2015 in Indonesia, the company provides travellers with inexpensive accommodations in Southeast Asia. They claim to be the largest hotel franchise in the Philippines and also have a presence in Indonesia, Malaysia, Singapore and Thailand. ZEN Rooms investors include Ooredoo, Redbridge Pacific, SBI Investment Korea, and Rocket Internet. In 2018 they raised US$15 million in Series B funding from Yanolja, the largest online travel platform in South Korea. The funding is a non-controlling stake but includes an option to buy 100% of ZEN Rooms.
Hotel NIDA: The company acquired long-term leases on existing boutique hotels in prime locations in Southeast Asia, re-branding and operating them under their brand. It was last reported that the company had cash flow issues and that the business was being restructured.
Ayenda Hotels: Ayenda claims to be the fastest-growing hotel chain in Latin America with 45 properties expected to triple in size. Based in Colombia, Ayenda is the largest hotel chain in the country, franchising small hotels in main cities to ensure quality on the basics needs for travellers. In March 2019 the technology company / digital hotel chain raised US$1.2 million in a seed investment round led by SoftBank (who has also backed OYO), 500 Startups and Kairos.