OYO has doubled the inventory in India

Helping OYO along is the fact that traditional hotel chains in China have a high barrier for membership. A chain will typically ask for a series of fees—membership fee, a fee for the computer system, a deposit, and other expenses.

And these are on top of the renovation fees an owner has to pay out of pocket to ensure the hotel matches the chain’s aesthetic. Most hotel chains also require properties to have a minimum of 80 rooms to be eligible.

Renovation at its best

OYO had none of these compunctions. “OYO wasn’t like Rujia and Hanting those hotels. You don’t have to renovate everything according to their specifications,” says Xue Jun Ying, a hotel operator in Tianjin, a city close to Beijing. Xue signed up with OYO in June 2018. “With them [Chinese chains], I would have to spend all this time renovating and then they’ll still collect these fees,” she says.

OYO does not expect its hotel owners to overhaul their hotels. Xue said she spent about 800,000 RMB ($119,200) of her own money to renovate the hotel, redoing some of the bathrooms. OYO paid for the new signage and the renovations in the corridors. She didn’t have to pay a membership fee or a deposit.

Filling beds

In exchange for partnering with OYO, hotel operators are promised increased occupancy. According to the company’s research, occupancy for individually owned hotels is under 40%.

In contrast, Huazhu Group-owned Hanting, one of the largest chains in China, had an occupancy rate of 89% in the quarter ended in December 2018. On average, chain hotels have an occupancy rate of 75% or higher, according to Li. For individual owners, however, even getting up to 50% is a huge boost, he says.

Xue said her occupancy rates have gone up a bit, though it is hard for her to compare revenue for the last two years, as she was ill and had to work less. Since joining OYO last summer, she said about 75% of her guests came through apps as well as OYO’s offline channels like tour groups. It’s too early right now to tell how much benefit OYO has brought, she said.

But Xue does have a complaint—she has lost control over her prices. “I’ve potentially lost tens of thousands of yuan in the last couple of days,” she says.

This is because her rooms generally fill up around March every year for an exam nearby. This demand allowed her to charge up to 300 RMB ($45) per night for a room. Now, a single room goes for 80-90 RMB ($12-13.5). Still, she plans to partner with OYO for two of her other properties. Xue declined to share the exact details of her deal with OYO.

This is a point of contention between individual hotel owners and the Indian-born company. The OYO spokesperson, though, claims this wasn’t really a problem. “We have a more professional and systematic pricing strategy that takes into account the total revenue,” said a spokesperson for OYO.

This sounds similar to the company’s practices in India, where room rates are discounted in the latter part of the month, especially if occupancy has been low for the elapsed period.

The company calls it dynamic price adjustment—a strategy that takes into account how many rooms a hotel has in relation to the market, and then considers how many customers are needed to maximize profit. This system may change, the spokesperson said.

Lost and found

OYO’s hybrid model of aggregating existing supply and providing them with a uniform brand and customer experience means that it doesn’t quite resemble anyone else in the existing market.

However, its sharp rise to prominence has seen many businesses—even ones it doesn’t directly compete with—mark it out as competition.

Meituan Dianping, a leading tech company that focuses on food and lifestyle services, is one of them. One of Meituan’s many businesses is an online hotel booking platform.

Meituan accounted for almost 50% of China’s online hotel bookings in the second quarter of 2018, according to Trustdata.

A front desk employee at an OYO-branded hotel in Tianjin said that she would personally use Meituan over OYO’s booking app.

“Maybe it’s because it’s more familiar, but it’s also because Meituan will tell you what’s nearby and what you can eat,” she explains. She declined to be identified beyond her last name as Li as she didn’t want to offend her employer.