He is just 25 with a high school degree. But he is known as one of the greatest innovators in India for introducing a unique brand that has made quite a splash not only in the Indian but the global hospitality industry. Meet Ritesh Agarwal, founder and group CEO of Oyo Hotels and Homes, world’s seventh largest hotel chain in terms of room number. Agarwal launched Oyo in 2013 from Gurgaon, India, after failing to find a decent budget hotel to stay in. Fast forward six years, Oyo has expanded its footprint to 500 cities of 10 countries, including Nepal. It operates over 18,000 hotels and homes, mostly budget. Oyo’s business strategy is pretty simple: In most of the cases, it enters into partnership with those who are already running hotels and allows them to use its name on a revenue-sharing basis. Once asset owners come under Oyo’s umbrella, they must meet Oyo’s standard on almost everything from physical infrastructure, basic amenities, safety and security to bed linen, toiletries, shower heads and even beverage trays. The initiative taken by Oyo to standardise economy hotels has been a boon to budget travellers who otherwise had to worry about stinking toilets, bed bugs and their own safety. Oyo’s entry has thus raised the stakes for all operators of budget hotels, enabling budget travellers to travel in certain style. Rupak D Sharma of The Himalayan Times met Agarwal in New Delhi last week to discuss Oyo’s future plans in Nepal. Excerpts:
Oyo has just raised $1 billion mostly from Japan’s Soft Bank. With this fund, Oyo has around $1.1 billion in its balance sheet. How much of this money is coming to Nepal?
We have allocated $200 million for South Asia, primarily Nepal and India, in this calendar year. It will be hard for me to give you a breakdown for Nepal, but we will invest this $200 million in India and Nepal.
Oyo, which entered Nepal in May 2017, operates around 150 hotels in three cities in the country. It is now planning to start operation in 12 more cities. Which are the cities?
We are planning to expand our footprint from three cities in Nepal to 15 cities by 2019. However, we have not finalised the cities yet.
What are the highlights of the expansion plan?
Oyo’s growth is rapidly gaining momentum in Nepal. In the last three to four months, more signage of Oyo has cropped up in places like Thamel, Pashupatinath and the lakeside of Pokhara. This is making more people aware about Oyo, prompting more hotel owners to partner with us. In countries like Nepal and India, asset owners are aware that investment in infrastructure can drive up occupancy as well as profits. But many cannot make the investment because of shortage of capital. We are, thus, planning to inject capital in such assets in 2019.
What will be the share of capital expenditure in Oyo’s total investment in Nepal?
Oyo’s investment comprises capital expenditure, expenditure in human resources, such as personnel, and expenditure in technology. We recently announced partnership with Khalti, a digital wallet for online payments in Nepal. We have announced few other API (Application Programming Interface, a software intermediary that allows two applications to talk to each other) partnerships in Nepal, for which our engineers have been deployed. That said, it’ll be hard for me to give you a breakdown of our capital spending in Nepal at this point.
How does Oyo recoup its investment? How does your revenue-sharing model work?
We have three different business models. First is franchising, under which we send a general manager or an assistant general manager to every Oyo hotel, and manchising (under which asset owners have a greater say in day-to-day operations). The cost of renovation is either funded by asset owners or us. If asset owners fund the renovation, we charge less fees. But if we have to bear the cost of renovation, we levy slightly higher fees. We also provide support on infrastructure, service quality and technology, such as installation of POS devices in reception and construction of payment infrastructure. We also have management contract and leasing business, where we fundamentally go and lease a property and operate the hotel ourselves.
How do asset or property owners benefit?
We help them generate higher yields. Every building that becomes a part of Oyo’s chain witnesses an increase in average occupancy from 25 per cent to 65 per cent in a brief span of three months, leading to better financial returns on hardearned investment of partner franchisees.
How long is the contract with asset owners?
We enter into long-term agreements. But asset owners can always terminate the contract. We are flexible on contract termination because we are confident about our value proposition.
What is the rate of contract termination at Oyo? Has growing popularity of sharing economy hurt your business?
Less than a per cent of asset owners terminate the contract with us. On sharing economy, Oyo Homes is one of our key portfolios through which we lease and manage homes. We circulate information about these properties through platforms like Airbnb, Expedia and our own websites. So, I think we will be beneficiaries if the sharing economy grows because more travellers will come and stay with us. So, from our perspective, this is not a zero-sum game.
Oyo hotels must meet certain standards, including safety and security. But most of Oyo’s operations in Nepal are monitored by headquarters in India. Won’t that create problems?
We have a country head, country office and city offices in Nepal. So, a majority of the decisions are taken by the country office. All the general managers, city heads and the country head are locals. So, the buck stops at the desk of the Nepal country head and the person does not have to call the South Asia chief to make most of the decisions. However, issues related to big investments and structural changes need to be discussed with higher authorities. So, our representatives in Nepal are skilled. Talking about skills, we are soon setting up a formal Oyo skills institute in Nepal, which will be a fullscale hospitality institute.
Will this institute be open for all or only those who wish to work for Oyo?
We have 26 Oyo skills institutes, primarily in India, Indonesia and China, which provide quality hospitality training. It won’t be mandatory for those who enrol in our institute to work for us. We offer these training programmes for free and guarantee jobs as well. So it depends on the trainee to take our jobs.
Most of the Oyo hotels in Nepal are budget class. You have a range of products targeted at other income groups as well. When will those Oyo hotels come to Nepal?
When we first started, we were very focused on the economy segment. This year, we will be launching mid- to upper-mid scale hotels in Nepal. So, they are coming soon to Nepal.
What will be the price range of these hotels? How competitive will they be vis-a-vis those of your competitors?
The quality of experience at our mid-scale offerings would not be very different from Radisson sort of hotels. But prices will be 30 to 35 per cent lower. Every product we launch is incrementally better in quality, yet prices are not as high.
Oyo has seen growth spurt over the years. Perhaps this is because it is a newer brand with a low base. But everything has a saturation point. When do you think Oyo will hit the saturation point?
So far we have been blessed with rapid growth. The challenge is to continue delivering the best experience. May be we will keep growing in the years to come but the pace of growth may not be as rapid as that of today.
You are considered as one of the greatest innovators of all times in India. How does it feel?
I grew up in a very small town along the borders of Andhra Pradesh and Orissa in eastern India. My family didn’t have great expectations. My parents thought I would do fine in my life if I ran a provisional store. For them, the best career achievement would have been landing a job after pursuing a degree in engineering. Considering this, I feel lucky to have become a part of the generation, which is seeing rapid growth of Asia, where Asian firms are increasingly creating dramatic effects worldwide. I genuinely believe this is the generation of the East. I believe entrepreneurial opportunities will continue to grow in countries like Nepal, India and China and young Nepalis, Indians and Chinese will create some of the biggest companies in the world.
You sound like you’ve become old at 25?
I feel I was born middle-age and I kept growing older. I am very lucky that most of the people in my company are either in their 40s or in their late 30s. Hence, I do my best to spend a lot of time with the young people on the ground as I get to learn and share so many things with them every day.
What did your parents say when you decided to drop out of college to start your own venture?
They were not aware of my decision at that time, as they were in Orissa and I was in New Delhi. So, I dropped out and kept doing my things. But they were very disappointed when they learnt about it. My mother asked me to first get a degree and do whatever I wished. My father thought my move was not rational. Later, I was able to convince my father saying I was only taking one gap year after high school, which is quite common in India. But in the heart I did not want to pursue Bachelor’s degree. So, initially, they were not happy. Even today my mother says I should get a degree.
Lastly, what would you like to say to Nepali youngsters who wish to become entrepreneurs like you?
Those growing up in small towns, unlike New Delhi and Kathmandu, often hear that they should limit their expectations because of their financial status. In today’s generation, one can dream bigger than ever before, but the feet should be kept closer to the ground. So, one should be ready to dream big and work towards the cause. But when you choose to do that remember perseverance is your best friend, because overnight success is very hard. However, there is always light at the end of the tunnel. This is what I have learnt in my life. I was very close to giving up many times. But I just continued and kept trying to get the better outcome.
A version of this article appears in print on March 19, 2019 of The Himalayan Times.