Aditya Ghosh, chief executive officer,
OYO India and South Asia, is a lawyer by education. At the age of 28, he was the general counsel of InterGlobe Group and president of IndiGo at 32. Under Ghosh’s leadership, IndiGo became the most successful Indian airline, commanding a market share of 42.5 percent, as of January 2019. After Ghosh left IndiGo, he became a member of the advisory board of Fireside Ventures and joined Tata Trusts as a senior advisor, who will advise the management on cancer care initiatives. Launching Collection O, a mid-market business hotel brand for millennials, Ghosh said OYO's estimated losses would go down to 10.4 percent in 2018-19. The company said its losses declined to 20.3 percent in 2017-18. Edited Excerpts Q: About 100 odd days, almost to the date.
A: 125 almost to the date. Feels like longer though in a good way.
Q: Your global revenue rate which is a sort of Gross Merchandise Volume (GMV. For hotels, if you want to draw a parallel to ecommerce stood at about $1.8 billion. India accounts for $1.2 billion of that realised revenue run rate. When we spoke last time, Ritesh Agarwal called China the new home market and if you look at the number of rooms, China almost has the number of rooms that Indian does. Tell us about the India story for Oyo?
A: We actually treat both India and China as our two home markets. China actually exceeds India in the sheer number of rooms that it has today. India is a very supply constraint market. Almost in any business, product, service you look at the moment, you are able to improve the quality of service or improve the quality of the product that you are putting out there, make it more consistent. Also, we are making it more affordable when the market suddenly expands. This year again we hope to more than double in size in India.
A: I and Ritesh Agarwal were joking just a short while back that in November when we announced that I am coming and joining the journey, we were 1,43,000 rooms in India. Today, we are 1,73,000 rooms.
Q: In terms of the number of fully owned leased rooms? So, in the last 125 days give or take, we added 30,000 rooms in India, so 10,000 rooms a month.
So, this just goes to show how much pent-up demand there is.
Q: In India, you have a presence in around 259 cities. What is that presence actually and what are your biggest markets? Do they continue to be tier-I or let us say the top 25 cities in India? Are those the markets that you will double down on very aggressively or will you continue to make it 300 cities and 350 cities with that one token Oyo Hotel or home or whatever suits that particular market?
A: First of all, the 259 cities that we are in today and expanding have one or two hotels. We go in and we believe that you have to go deep first before you go wide, so that is one. If I was a traditional legacy hospitality business, which I would let us say 2-3 brands and they are like jostling next to each other then what happens is you have to double down on certain markets and hope like hell that works. Here, each one of the brands is very large. We are able to address different markets differently.
I will give you an example. The Townhouse is kind of our midscale brand. For this brand, tier- I and II cities are definitely the ones where they are doubling down. Let us say SilverKey, where our executives stay, that is a very interesting portfolio where it is saying, yes we will be in tier-I and II. But if you have a large factory or a large production plant or a large research facility or you are putting up a massive 300 acres research campus somewhere, we will put in our hotels and our SilverKey products there.
If you are looking for the low budget and basic amenities, then we will put Oyo rooms wherever you need them. So, customers will think about a bunch of brands, different price points, different geographies and cities and within those cities, different clusters. So, what you can do in a Bandra would be very different from what you can do in South Bombay versus what you can do in let us say next to Dharavi or Asalpha.
Q: Let us talk about these brands. You have a new launch today and it is called Collection O. So, what is different about Collection O apart from the fact that it doesn't have OYO in its name?
A: I don't know whether that was any conscious decision or not.
Q: Was it? Is it going to help Collection O if it's not called an OYO as there is a certain impression around what OYO as a brand stands for? What segment Collection O caters to and so on and so forth?
A: Collection O is essentially a brand, which is targeted at primarily the millennial young professional who is wanting to pay somewhere between let us say Rs 1,500 to 2,500. We have upgraded the design, so it has become very cool and sheik and then it has got a workstation, it has got high-speed internet, Wi-Fi and got 24 hours in-room dining. Whether it is a 30 room hotel or 40 room hotel or 100 room hotel, we will take it to where you are. So, this triangulation of location which is suited to you rather than me, a price that works for you rather than me and a design element and a product feature that works for you rather than me, I think this is that secret sauce of OYO.
Q: Give us a sense of what is in it for the hotel owners who are leasing out these properties to you? What percentage of your business comes now from hotels that you are franchising and leasing out? What is the sort of typical terms for which the leaseholds? What are the renewal rates, how many people are kind of renewing those contracts? You put in money into land or a building and you can get a rental yield of some minuscule percentage. The real estate market is not in its best of times.
So, here is a business which overnight starts generating money for you. So, what are the six areas that we come in and work the most with? First, identifying the property and saying which is the brand that works best? Second, put in the infrastructure and the capital expenditure in that infrastructure to upgrade the facilities. Third, bring in trained staff but at a phenomenally different efficiency ratio than what you would normally do. You have 4 to 5 people per room versus 2 people per room, that happens in the best of hotel chains. Fourth, plug it into a large booking engine, where we have complete price control. So, we are not a marketplace, we do revenue management on all our hotels.
Q: What about the downside to the hotel owner who is not making as much on the commissions as he or she thought when they signed up? What happens when it makes sense to put it on any other online travel agency (OTA) and let go of 20 percent odd of commission? But, you still have the power to run the place the way you want to because once OYO comes in, it is OYO then, it is not your hotel anymore?
A: There are two kinds of hotel owners for which we are not the best alternative. One, a hotel owner who is consistently getting a very high occupancy. Like, you are already hitting 70-80 percent occupancy throughout the year, then you don't need OYO. The second, if you are able to have a very large captive customer base - you are a traditional guest house, you have got a tie-up with some tour company and they send you the customers, that is the other reason why you won't need OYO. Every other case, we will take you from an average of 25 percent occupancy up to about 65 percent, your cost goes up marginally, but your profit expands phenomenally.
Q: Two last pieces of conversation that we must have. One, around your expansion into the co-living, home rental and managed home spaces. Tell us about that business. How is it growing in India and where do you hope to take it in the next year or so? Lots of competition in that space and deeply funded too, but not as much as your billion dollars. Please tell us about that.
A: Great opportunity. What do young professionals do? You join a college or a company, you look for colleagues or classmates and get together. Here is our co-living product called Oyo Life, where you do not pay any security deposit, you do not have any long lock-in period, it is security screened and all the common facilities. So, I think it is a great opportunity there.
Homes, of course, we are different from any other OTA or marketplace as we have complete revenue management and pricing control over it. So, again, we have thousands of Oyo Homes, especially, in the leisure cities. However, now we are also going into the bigger cities where people want to rather than staying in a hotel, they want to stay in a home and then experience that.
We are committing another Rs 1,400 crore that we are going to spend and invest in India alone in the next 10 months on hotels and homes, especially on hotels. So, it will basically go into the capital expenditure of the hotels, it will go into better leadership pipeline and just people as we will have to create a large very consistent workforce to be able to deliver on this dream. Third, more on the R&D that we do on engineering, structural engineering, design and on pricing. So, these will be the three big areas in which we are going to put in Rs 1,400 crore.
Q: Would it be fair to say that in the next say two years or so, hotels will still continue to be your mainstay and not the co-living, home rental space that much? What would be the revenue contribution if you have targets towards that? Hotels will by far be the significant contributor. Co-living is actually very adjacent and close to it.
Homes will be a niche and very interesting business. But absolutely, we will be doubling on hotels.
Q: Co-working and cloud kitchens, these were both of the pieces where there were a lot of reports of acquisitions and rather large ones taking place. Tell us about that.
A: Nothing that I am deeply involved in at the moment.
Q: Talking on large acquisitions in the hotel space. I know that you acquired Novascotia, which you then rebranded as SilverKey. Any other acquisitions that you are looking at in India in terms of just quickly expanding the numbers and scaling that topline figure?
A: We have a very clear filter there. The filter is we will not acquire for growth, we will acquire for capability.
Q: You mean on the tech side?
A: It could be anything. It could be tech, it could be the way of running a business, but nothing that we are actively looking for at the moment. However, it will not be because of growth.
Q: At 100 days that you have done, give us a sense of what is your big target for the close of 2019?
A: Just because of the background I come from, safety and security is a big deal for me. Two, how do we bring in massive amounts of depth and breadth in the network. Three, how do we combine it with great quality of service. It does not have to be the best in the world, but the most consistent. Four, how do we grow faster. We are on a mission. Finally, which is probably my most favourite is the people that I get to work with. I want to build a great organisation.
Q: You did not talk about profitability. That is something that you managed at InterGlobe Aviation for several quarters running on the trot until you left. Profitability at Oyo?
A: Let me put it this way. I know no other way of doing business. So, I definitely will be chasing that.
Q: You managed to bring it down from 40 percent to 20 percent, your losses.
A: I think the guidance that we have given for this year is 10 percent.
A: I think it will be all of Oyo. But I am certainly going to be chasing profitability.
Q: On the back of India expansion or on the back of global expansion?