How Treebo aims to be India's Numero Uno brand in the $20B budget hotel category

Bad experiences aren't foreign to anyone who has had to stay at a budget hotel in India. There are cases of hits and misses at every stay. But imagine, you walk into a hotel and find the staff to be courteous, your room smells clean and everything is in order.

Treebo Hotels was established to bring this very experience to budget hotels. Beginning in June last year with four hotels in Bengaluru, in a span of few months, Treebo is today present in 11 cities and is clocking sales worth $11 million annually, net amount after all cancellations.

Building a brand and not aggregators

A $20-billion market, the budget hotel segment has been abuzz with activity, especially last year, with established biggies, and new but experienced companies entering the fray. Speculation of OYO Rooms acquiring its competitor Zo Rooms or the news of Paytm entering the last minute hotel booking space, the budget hotel segment has been in news.

Yet, Treebo believes that it can crack this space. "It is about establishing a system of flywheel that creates an organic and sustainable circle of building both partner and customer value," says 31-year-old Sidharth Gupta, Co-founder, Treebo Hotels.

Friends for decades, Sidharth, Rahul Chaudhary and Kadam Jeet Jain started up after working for the likes of McKinsey and co-leading the strategy team at Myntra. On the decision to get into this segment Sidharth says coming from middle-class families and also having worked as consultants, the trio had experienced hotel rooms at both ends of the spectrum.

Breaking into the market

But getting a foot into the market to create an organic and sustainable model isn't easy. Like all startups, the trio began with exploring the market and cold-calling different hotels. They found that while the owners could be amicable and reasonable, the managers at times would work as the firewall.

As they were just entrants in the segment, Sidharth says they had to make the hotels believe that Treebo would build value for them. "To bring in the value and give a great customer experience you need to ensure that the hotel owner in turn gets value," adds Sidharth.

Value to the owner is increase in revenues, increase in occupancy and operational help. This, Sidharth adds, is possible by giving a minimum guarantee. In Treebo's case the minimum guarantee works on a model that is different from the partial inventory model.

Working on building a seamless flywheel

So, if a hotel has 40-percent occupant rate, Treebo guarantees that cap. "At the end of the month if I am unable to generate that much business or more, the deficient is paid from our side," says Sidharth. The team had put in that guarantee without any backing. Though Treebo raised money in June last year, they were prepared to back that claim even if they hadn't any external funding.

Speaking of investing in Treebo earlier on, Mayank Khanduja, SAIF Partners, says, "The team approached the business differently. For them it was about truly building a brand, and we felt that their model would truly help achieve that, as they would have greater control over quality."

For anything that is over and above that cap limit, Treebo take only a percentage of that share. If the regular business is at Rs 5, 00,000, then that whole amount is blocked with the hotel owner. Now if he makes Rs 7,00,000 then 30 per cent of the extra Rs two lakh is what Treebo gets. This ensures that the hotel owner doesn't lose money.

"Unlike the partial model, I have avoided a gross perennial burn of buying hotel rooms at retail and selling them off at a wholesale price. It's a perpetual burn, you can't reduce the rates that you give to the hotel owner, as there are several players. And if you increase the price the consumers drop off," adds Sidharth.

Creating consumer value

Treebo doesn't own or take care of day-to-day operations at the hotels. But, according to Sidharth, consumer experience is taken seriously once hotel owners realise that the shifts and changes help them get more business.

Mayank adds that in the hotel business will always have multiple players, and like the China market, there will be both brand players and aggregators.

"While choosing the brand play is difficult, it creates the right value. The Treebo team have been able to execute their plans and create high quality. I've personally spoken to some of the hotel owners, and they've given great feedback," adds Mayank.

Treebo has a 'My Green Hour' initiative, wherein every employee spends one hour per fortnight answering guest calls. There are also times, when the team, especially those whom the hotel owners haven't met, check-in to the hotel and stay for a night or two to ensure the quality remains upto Treebo's standards.

Treebo has built a DNA where the focus is on building customer several delight initiatives. Speaking about his experience with the brand, a customer’s says, "Treebo Akshay Mayflower is a new property and I had booked it for a large number of people, who were coming from two different States, to host a wedding here in Bengaluru. The hotel owner, manager and front desk were all so helpful and kind throughout the experience, that it completely felt at home."

Sidharth adds that to ensure that they create value and maintain quality at the hotels they have built a module known as 'Friends of Treebo.' It is a crowd sourced quality audit program that includes students, travellers, corporates and even freelancers, who can conduct a mystery audit on any of Treebo's properties and give the feedback to the team.

While the in-house quality assurance checks and audits remain robust, the Friends of Treebo initiative is to create a sustainable model of ensuring that the quality of every Treebo property is truly great and up to standards for every guest.

Tarun Davda, Matrix Partners, says that when there was a third-party audit and survey conducted, close to 70 per cent of the consumers that the team spoke to were happy with Treebo and were willing to come back to the property.

Creating sustainability

"It is very rare that you find a team where you can bet on each individual separately. Rahul and Sidharth have great complementary skills. They were serious and very clear in their vision. They also got in Kadam, who is a great CTO," adds Tarun.

The team is clocking 1,000 to 1,200 room nights a day, they clocked an average of 76 percent occupancy with an Average Room Rate (ARR) of Rs 2,100 in December 2015. The team plans to expand to 2,000 hotels in 100 cities with 60,000 rooms in the next three years.

The market

The hotel booking industry still faces challenges while convincing users to book accommodation online. About 50 percent of booking still happens via an offline channel.

During the year, OYO Rooms bagged the largest funding of $100 million from Softbank. Zostel entered the low-budget hotel space with Zo Rooms, followed by a series of funding raised from Tiger Global.

Treebo, nevertheless, has to compete with deeply-funded aggregators, even if it's not into the aggregator model. Players like a Makemytrip and Goibibo too are hustling in the space.

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