The creation of the Indian hotel chain OYO Rooms has been one of the most inspiring stories. Started by founder Ritesh Agrawal, the company scored new heights. By September 2017, it had grabbed a huge chunk of the market from its rivals. Post its expansion spree in international markets like the US and China, the company become an international success. Its expansion was funded by SoftBank. The company ran into losses of $951 million (2018-19) from $211 million (2017-18).
OYO Rooms for the last few years was one of the most successful company. The highest inventory of rented rooms has made it popular. They had also signed exclusive deals with big and small hotel chains. This guaranteed income to the hotel owners. The company was once deemed to be the largest hotel operator globally by room count. OYO has been looking to increase its number of rooms to 1 million.
But lately, the company has been strategizing on its path further. They have stopped their market grab strategy. They are now looking to increase occupancy rates in the existing hotels. And to cut the properties that are making a loss. Amidst investor skepticism, they are also making reductions in their workforce. China, US, Japan, and India have been seeing these reductions. In China, amidst the outbreak of COVID-19, they are cutting costs. Also, they are lying off their workforce.
In all OYO Rooms is cutting around 5,000 jobs in India, the US, China, and Japan. The highest number of workforce reductions will be in China. The coronavirus is the reason for the dramatic cost-cutting in the China region. This downsizing has been a major setback for SoftBank.
The company has seen solid support from SoftBank that has invested $1.5 billion in it. Apart from SoftBank, Airbnb Inc., Lightspeed Venture Partners, and Sequoia Capital are also backing OYO. The company has worked aggressively to increase its market share. For this OYO has been offering hotel stays as cheap as about $4 a day. For the past couple of years, the company has carved its future for international expansion.
Ritesh Agrawal said that the company is struggling in China to keep their hotels open. Many hotel owners also protested against this move. The Japanese business of the company is also facing many problems. The alienating partners, customers and workers are creating these problems. The company’s reputation has also suffered a bit due to some customer complaints due to bad experiences. Some complaints from hotel owners for unfair treatment has ruined the show.
In India, OYO has been facing many complaints from its hotel partners on issues like delayed payments. OYO recently replaced its CEO, Aditya Ghosh, with Rohit Kapoor who was a former McKinsey partner. The tenure of Ghosh was a disappointment for the company. They are facing antitrust probes over its partnership with Makemytrip.
OYO has seen a process of continuous staff reduction first 1200 employees were laid off in Delhi, Gurugram, and Jaipur. These were then intensified as the hotel chain struggled to harness in costs. After laying off 5,000 employees, the company is left with 25,000 employees. The employee strength of OYO is around 20,000 - 22,000 employees in India and China.
OYO Rooms is a large hotel chain that operates more than 10,000 hotels. There have been certain troubles with its partners in India. These hotels have been claiming that OYO has violated many contractual agreements. Because of the Coronavirus epidemic, many specific provinces of China have struggled to keep many hotels open. All this led to a big struggle in the Chinese market.
What OYO needs to do in the future is to build a healthy and strong relationship with their partners. They can grow better with the support of their partner and their management. This is what they should aim at; partner success is the key to nurturing such a business. The company has been struggling due to financial issues. They need to move towards reconciliation.
The applicable contracts that are drawn out with asset owners and other stakeholders should comply with all types of changes. The communication stream of OYO with the hotel owners and other channels needs to be mended. The above 2,000 asset owners have many properties with OYO. They have a huge resource base that they can explore to enhance their future and minimize losses.
The idea of building a sustainable business in China, with better hotels and Homes is underway for OYO. But with the COVID 19 outbreak, this is something that OYO will have to wait for a considerable amount of time.
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