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Ritesh Agarwal

The author is the founder & CEO of OYO

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Innovation: Changing the Face of Hospitality

For decades, India’s hospitality entities had been doing business in tried-and-tested fashion, too warm in their comfort zones to risk any innovation or change. The digital era has changed all that. Upstarts have challenged the reputed companies with disruptive innovations.

Photo Credit : Reuters,

There’s a silver lining in every dark cloud. Globally, technology has emerged as the biggest business disruptor of all time in myriad sectors. Hospitality is no exception as it has also witnessed the swift rise of innovators. Nevertheless, it should be noted that technology has helped transform industries too, taking them to higher orbits.  

For decades, India’s hospitality entities had been doing business in tried-and-tested fashion, too warm in their comfort zones to risk any innovation or change. The digital era has changed all that. Upstarts have challenged the reputed companies with disruptive innovations.

Supply Shortfalls

To comprehend how this happened, it’s important to first understand the market scenario. According to Government of India estimates, domestic tourist visits to states and Union Territories (UTs) grew by 15.5% y-o-y to 1.65 billion during 2016 and about 88.90 lakh (8.89 million) foreign tourists arrived in India in this year. As per the Ministry of Tourism, however, India has a shortage of more than 200,000 rooms. This includes domestic as well as international travellers. Contrary to this data is the market of unbranded hotel rooms, which as per estimates is approximately four million.

Therefore, more than the shortfall of rooms, the real problem is that there’s a major disconnect between demand and supply of quality living space, forcing travellers and city-dwellers to compromise on variables of location, comfort and pricing. The traditional models of the hospitality industry were unable to bridge this gap. First, because organic growth or greenfield development can take years, during which time the shortfall is further increased. For example, while the supply rose 3.9% only in 2016, demand spiked by almost 11%. Second, lack of predictability, standardization and trust for the unbranded budget hotel segment. Third, because of the difference in price points; India primarily has had hotels in two categories, based on average room revenue (ARR): Economy/Budget Category – Hotels with ARR lower than Rs1,500 and Premium category: Hotels with ARR upwards of Rs3,500.

The absence of quality service at economy price points opens up a huge white space for the branded economy chain and much scope for further innovation. This white space left scope to develop new products that fall in between these two categories from an ARR perspective, but deliver superior customer experience for users.

Also, for decades, differing price points established hierarchies in the hotel industry. As for B&B (Bed and Breakfast) players, the mantra was affordability. Consequently, service differentiators, professionalism and soft skills were woefully overlooked in favour of optimizing running costs and margins.  The customer who was at the crux of the product and ostensibly should have been the centre of the product-experience was inexplicably peripheral to it.

This is where innovation, technology and up-skilling talent have helped to fix the socio-economic problem so that demand and supply for both people and property are in perfect equilibrium.  

Opportunities Ahead

As mentioned earlier, organic or greenfield development can take too long and is also extremely costly. Therefore, it was clear that inorganic or brownfield growth was the best way forward. One now had to look around to identify the opportunities available across the country. India being a vast nation, there were plentiful opportunities. Yet, it was a question of mixing and matching the opportunity with requirements to create a new template.

For example, take the case of Goa – one of the country’s hot tourism destinations since decades. The former Portuguese colony had more than 85,000 residential homes that were locked. Nationwide, more than 10 million homes are estimated to be fully constructed yet unoccupied for various reasons.

This is because Indians prefer investing their savings in real estate rather than other avenues such as financial securities. Real estate is supposed to be much safer and also deliver higher returns. Consequently, many individuals prefer investing in more than one home since the investment is expected to rise faster, buoyed by the ever-increasing demand for land in India. So real-estate purchases remain driven by investment requirements more than housing needs.

Of course, there are other reasons why people purchase second (and third) homes. These could be considered retirement, vacation or holiday homes, which the investor (and his/her family) visits once a year or so, staying for a few days and inspecting the property.

Fortunately, these thousands of unoccupied homes happened to be in urban as well as leisure markets. The question now: somehow, if these could be made more accessible and liveable as homestays, an immense opportunity could be unlocked overnight, so to say, to ease the travel-rooms supply crunch.

Innovative Solutions

Here is where OYO stepped into the picture. The first leg of transformation we bought into the hospitality sector was by introducing standardization and predictability in the stay experience of travellers, especially for the mass market budget category. The next leg of transformation was utilizing real estate more efficiently by designing and developing them into a beautiful living space – a hotel where brand-new systems replace older, wasteful conventions. A hotel that is optimized for comfort, efficiency, convenience and affordability. To cater to this segment, we launched our mid-market self-operated hotels – OYO Townhouse and OYO Homes. Third, was bridging the skill gap for the sector by imparting training through an enhanced, industry ready, hybrid and state-of-the-art training program.

Both OYO Home and OYO Townhouse were launched to address the white space for branded economy chain and maximizing economic utilization of real estate by unlocking the potential of locked homes.  Both categories combine experience and value at a scale that has never been attempted before in the hospitality landscape. It breaks away from decades-old hotel industry templates and brings in beautiful quality living spaces to mid-market categories in Indian hospitality.

With these products, discerning customers, who can afford to pay, have a more value-for-money substitute as far as hotel stay goes – both for professional and leisure use. Further, building a service layer that operates with tight cost control in a fragmented on-ground scenario (less number of rooms per hotel, more number of hotels) has also given us an opportunity of further innovating this service layer for even the budget segment going forward.

Apart from design, technology has been the biggest driver for us to achieve all these transformations. Here, we aren’t just talking about guest-facing innovations (Sunrise Check-In feature) but also innovating back of the house operations by providing end-to-end technology to hospitality partners and internal workforce. For example, our apps and innovative solutions have enabled us to successfully complete property makeovers in 3-14 days, whereas through the traditional approach it took months to transform any property.

OYO’s success has been backed by certain core factors, such as its being a full-stack hospitality company that’s driven by technology. Besides, it strongly believes in deploying innovation to drive greater growth. Rather than disrupting the hospitality sector, OYO’s innovations have actually augmented their offerings through the use of digital technology. Undoubtedly, OYO’s innovative offerings are a unique Made-in-India model…

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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