Most Internet multinational giants have defeated China – but Indian Xiao Li said that OYO is not an Internet company.
Editor’s note: This article is from WeChat public account “Late PostPost” (ID: postlate ).
Two years ago, several Indians led a group of Chinese elites to start their business in China’s fourth- and fifth-tier cities. They spent nearly 600 million dollars in China under the banner of “urban encircling the city”. Soon, they experienced crazy expansion, chaos after expansion, layoffs and financing difficulties in chaos. The witness of all this is a 26-year-old Indian guy.
OYO China’s story is like a performance art happening in contemporary China. Last Wednesday, LatePost interviewed Ritesh Agarwal, the founder of OYO Hotel.
Ritesh’s face is tender and not tall, and he keeps the whole chin from the ear. He insists that the reporter call himself “Little Li” and prepares a thick reference for him to interview. Look over from time to time.
Every single answer of Xiao Li maintains the complete structure of “first, second, and again”. From time to time, he also pulled out the Chinese words such as “OYO Hotel”, “New Life Mode (2.0)”, “Boss” and so on. When he spoke, his eyes were very sincere, and he looked at you flashing.
“But if you close your eyes and chat with him, you will think he is 50 years old,” said Zhu Lei, chief earnings officer of OYO China. Zhu Lei is a professional manager, after 70.
The first half of OYO is a typical story of a star startup. OYO India was established in 2013 and completed the service of “Meituan Hotel + Home Inn” in India. The model is to provide unified modification, staff training and system management services for single hotels, and rapidly expand the market through subsidies and low commissions. It has now grown into the largest chain economy hotel group in India.
But the situation changed after OYO entered China at the end of 2017. After its rapid expansion, it found that the Chinese market is much more difficult than India. OYO is not very good at China, its operations are facing challenges, and funds are starting to tighten, so today they It is changing from very weak control to strong management.
There is a lot of information asymmetry around OYO. A very interesting phenomenon is that Indians feel that OYO is doing well in China; the Chinese feel that OYO is doing well in India. And around Ritesh, there are also two levels of differentiation.
Ritesh is very smart, very communicative, showing the high emotional and extremely modest side of the show, and the inside is very strong and vigorous.- These are the qualities of a typical good entrepreneur.
On the other hand, Ritesh is very controversial in the venture capital circle. Some investors believe that it is difficult for you to distinguish whether he is telling the truth or not. Ritesh has a high level of speaking skills and is good at avoiding weight.
In Ritesh’s description, OYO China has 500,000 rooms, and 90% of hotel occupancy rates have recently doubled. Currently, OYO’s single hotels are profitable. “The 500,000 rooms are the total amount of the peak signing, but there have been a lot of suspensions now; and if the hotel does not lose money, where is the tens of millions of dollars spent in a month?” An investor told reporters.
“Either Ritesh really understands China, or he knows what the Chinese want to hear,” an industry source said.
“Our most successful city is Shijiazhuang, the first big city to be conquered by the People’s Liberation Army”
LatePost: Two years in China, what new understanding of the Chinese market?
Ritesh: In China we are inspired by the philosophy of “urban encircling the city”. We don’t think China is just Shanghai and Beijing. We think China’s real economic center and market gap are 200 small and medium-sized cities and towns.
One of our most successful cities is Shijiazhuang. Do you know why it is Shijiazhuang? Shijiazhuang was the first big city to be conquered by the People’s Liberation Army during the Chinese Liberation War. It was the place where the victory of the “urban encircled city” began.
LatePost: Where did you get to know this?
Ritesh: I travel more in China than most other businessmen.
Because when I say that we are committed to improving the lives of ordinary people, we can’t just sit in Shanghai and Beijing. We are going to Changsha, Taiyuan… all the small places. In these places, you will learn more when you talk to ordinary people. If you see our internal international communication group, all discussions are in Chinese.
LatePost: OYO India’s model is to rent a room and renovate the rental, but OYO did not follow the Indian model when it first entered China, but instead expanded the offline low-end hotel to do OEM + light renovation. Why?
Ritesh: More than 36 million rooms can be developed in the Chinese single-hotel market, but they are expensive and the accommodation experience is not good.
First, the services of many individual hotels need to be improved. Second, many customers experience a bad experience when staying at these hotels.
OYO Hotel is a brand new business in China. We knew from the first day that the Chinese market has very special problems and requires very special solutions. So we call it the “home market.” The local market essentially means that we give the OYO China management team 100% decision-making power and execution rights.
LatePost: What can be copied to China, and what can’t be copied?
Ritesh: We have learned a few things in the past year and a half. First, if you need to quickly upgrade the hotel’s OCC (accommodation rate), the investment in the hotel is very important. Second, we found that the owners are provided with guaranteed income, and they will be willing to join OYO. So we created the 2.0 model.
We learned one thing from India: It is the most powerful to let local teams solve the specific problems of local customers. This is a good place for both India and China, and we hope to extend this model to the world in the future.
LatePost: How is China’s strategy different from the rest of the world?
Ritesh: Our strategy in China is to start in small towns, and in the UK we have more than 100 OYO hotels, most of them in London. The strategy of each country will be different depending on local conditions.
We open hotels in 80 countries today, 20% of revenue comes from the US and Europe, 30% of revenue comes from India, 30% of revenue comes from China, and the remaining 20% comes from Southeast Asia, Middle East, Japan Wait for the market to sum.
OYO is a global company and China is our home market. China is a sample of what our global markets are learning, and from here we can find solutions to many global problems.
“I can’t say the exact number. In fact, the income from the revenue minus the bottom of the guarantee can be ours”
LatePost: There are light hotels and H hotels in the light franchise area. OTA knows more about traffic, the hotel industry knows how to operate, and they know more about the Chinese market. What is OYO’s competitiveness in China?
Ritesh: Other hotels, Nana, we give it.
If you look at the Chinese hotel business model before OYO, you will always have to “take it.” The big hotel brand will always say “Give me the money, give me the cost, give me more things” to these small hotel owners. We think this is unfair to the owners of the 36 million individual hotels.
Our cooperation is “give.” The first thing we tell the owner is that we give you a renovation subsidy so that you can provide better service. Second, we will give you a guaranteed income. Third, we will give you more support, including hotel management, operational services, revenue management and more.
LatePost: Is there anything you can do but no one else can do?
Ritesh: 90% of hotel occupancy rates have doubled since the launch of the OYO 2.0 model. If you have an occupancy rate, you will have income. We can do it but other competitors can’t do it because they don’t know how to improve the occupancy rate, but we know. We know how to improve the occupancy rate of every OYO hotel, and we have more than 2,000 hotels in 2.0 mode.
LatePost: You increase your occupancy rate by lowering your house price, which only makes the loss worse.
Ritesh: OYO is now profitable at a single hotel. In China, it is all over the world.
The outside world said that we subsidize hotels to burn money. We don’t think so. We think this is an investment. First, we can decide on the renovation of the hotel. Second, it enhances the hotel’s operational services and user experience. Third, 90% of OYO 2.0 model hotels score 4-5 points online (5 points total). The improvement of hotel quality has led to an increase in occupancy rate and an increase in occupancy rate.
The profit of the single hotel is positive now. In the future, the total profit of the entire OYO Group will be positive. India, the United States and China will all be profitable.
LatePost: If the Chinese single hotel is profitable now, what is the profit margin?
Ritesh: I can’t say the exact number. In fact, the income from the revenue minus the guarantee can be ours.
However, we will also share with the owner in the part that exceeds the guarantee, because when the occupancy rate is increased, the hotel operating cost will also increase, we need to give the hotel owner some operating expenses.
In China, we have 500,000 rooms. In the 2.0 model, we have 2,000 individual hotels, each with revenue. All of China’s income adds up, accounting for 30% of OYO’s global revenue.
LatePost: If you really say that, why is OYO losing so much money in China last year?
Ritesh: Making money is not my main interest. My main interest is to create a sustainable business model that allows Chinese people to have a better life and buy better accommodation experiences at a more affordable price.
LatePost: You have an OTA market in India at the same time, but in China there is not only no profit but also a huge cost. Is this model sustainable?
Ritesh: In fact, India also has 2-3 very strong OTAs, such as Ctrip holding 42% of MakeMyTrip. We have a very good relationship with them and we have not claimed to have an OTA market in India.
In China, even before we worked with OTA, many customers booked OYO hotels from OTA, so we have always been a cooperative relationship.
All reports about our costs and methods for OTA are wrong. It is impossible for us to give a fixed fee and give them commissions at the same time.
LatePost: Have you given a commission or a fixed fee? If the report is wrong, what is the exact number?
Ritesh: We are not listed companies, so