OYO’s Ritesh Agarwal reveals why he’s betting on a full-stack model

Ritesh Agarwal, Founder and CEO, OYO, in a conversation with YourStory opens up about the year that was, his expansion plans for this year, and what his hopes are from the budget. 

With its marketplace model, OYO operates 5500 rooms under its full-inventory model in Karnataka. The platform is available across 230 cities in India, Nepal, and Malaysia, and covers over 70,000 rooms. OYO also recently launched OYO Captains, a concierge service.

In early 2017, the team launched its property vertical – OYO Townhouse. The team intends to open over 25 Townhouses across different locations in Bengaluru alone; over 250 Townhouses are planned across 12 cities by the end of the year. OYO has currently leased the properties from existing partners, and has refurbished them. The focus is on a unique branding proposition.

With OYO Homes, the company is also venturing into the same space as Airbnb. A report by Outlook Business says Airbnb currently has over 18,000 listed properties on its platform. Apart from Airbnb, Makemytrip launched its homestay offering, RightStay, last October. Yatra also forayed into the space in October last year - its TG Stays has 3,000 listed properties. Then there are other startups like WudStay and HeyBnB.

Speaking about OYO and its choice of venturing into different verticals, Ritesh Agarwal, OYO Founder and CEO, says, "OYO's mission is to create and offer good quality living-spaces at the right price and location. To enable this, we intend to tap existing supply and repair/upgrade to add to the overall inventory pool. We observed that locked homes represent a significant supply opportunity across top holiday destinations in the country. We are confident about the potential and our teams have a considerable headstart in this direction.”

In a Q&A session with YourStory, Ritesh spoke about the shift and adding more verticals. He also gave us an idea of what his core expectations from the FY19 budget are:

YS: Why the push towards a full-stack and franchise-owned model?

Ritesh Agarwal: When we started in 2013, we had started with one hotel in Gurgaon - Oyo Rooms GRG001. We had started as a full-stack hospitality company, and it was the model we followed for a year-and-half. But when we really wanted to expand and grow aggressively we felt the easier strategy to get a foot in the door into a hotel would be to ascertain a part of the hotel. However, when we had established relationships with thousands of these hotels, by early 2016, we made the decision to evolve into a 100 percent inventory exclusive franchise, or operating entity.

YS: You say 2017 was a great year for you. Can you explain the expansion into the different verticals? 

Ritesh Agarwal: Once we had decided to move into a 100 percent inventory exclusive franchise, we began working on setting up the TownHouses. Later in the year we moved to establishing Oyo Homes, which fully manages second holiday homes for people, and finally Oyo Rooms, which is a fully Oyo controlled asset. At the end of last year, we  had targeted 85 percent-plus revenues from franchise and non-aggregation business. Now, 90 percent of our business either comes from 100 full inventory exclusive - OYO Townhouse, Oyo homes or OYO rooms.

YS: How easy or difficult was it working on the operations and changing the company DNA? 

Ritesh Agarwal: The mindset shift had started in mid-2015. We were always an ops-intensive company, which was aided by technology. Even in the aggregation model, we would work on operations like ensuring certain cleanliness aspects of the room. So we have always had a mix of technology and operations.

Tomorrow you ask me to pivot to technology completely, and ask us to run an OTA, we will be very scared. For us, this is natural. We have always had thousands of employees and haven't just been purely internet-driven. We started by saying we stand for good quality service and taking responsibility, rather than being a booking agent.

YS: What are your expectations from the budget?

Ritesh Agarwal: In the last few years the government has had strong fiscal discipline. They have continued to enable more startups and jobs with the budgets by means of Skill India. The hope is that they can keep that momentum up, and this isn’t just for us. It is for every company that has a both online and an offline component - like having delivery boys etc. It is important that enough skilled talent keeps getting churned out.

The second expectation is more tax-oriented. First off, I am thankful that the government understood that economic hotels have a certain requirement, leading to exemption for hotels that charge Rs 1,000 or lesser, and lower tax rates for those charging less than Rs 2,500. But there is a specific pointer within that, which is to continue to keep taxation on the list price and not the payment price, and they have recently issued a clarification.

But it would be great if they could continue to keep it at paid price, which is viz-a-viz other industry norms and standards. This is because we have become more like an industry.

YS: What do you believe will be a game-changer, if announced, in this budget?

Ritesh Agarwal: This government has showcased i’s ability to be unpredicatable. The assumption is that the elections are due so there will be a populist budget. But I would know for sure only when it comes out. Given the budget, two things can be game-changers for the industry

Since we are close to real estate as well, we can turn properties into Oyo Properties. The first area that can help us is ensuring micro and small enterprise loans under the Mudra and CGTMSE Schemes (Credit Guarantee Fund Trust for Micro and Small Enterprises) become more available and have a larger budget.

This is primarly because there are SMBs who own hotels and for them to partner with Oyo means investing money into the hotel. If they have easier access to capital our ability to will be higher than the current 2.5x. Just because of the additional liquidity available to our asset partners.

YS: What are your plans for 2018? 

Ritesh Agarwal: We are looking to add over 20,000 rooms in Karnataka by the end of 2018. In Oyo Rooms, we are looking to grow from 60,000 to 1,80,000 beds. We had begun with a commission of 17 percent; from December, the commission went up to 22 percent.