“Change can be hard. It requires tough choices,” explains Ritesh Agarwal the founder and group CEO of India’s OYO budget hotel chain as he outlines the 2020 roadmap for the business and confirms recent rumours over significant job losses.
OYO may be one of the largest start-ups in the Japanese conglomerate SoftBank Group Corporation’s portfolio, but that doesn’t protect it from the business pressures of a highly competitive market. Its current woes add to SoftBank Group’s pressures, which most notably last year saw office space company WeWork fail to go public.
In correspondence to employees of the business, Mr Agarwal confirms among the new strategic objectives for 2020 will be a move to reorganise teams across businesses and functions. “Unfortunately, some roles at OYO will become redundant,” he confirms. While, there are no details on scale of this reorganisation, media reports puts job losses at up to 4,000 employees, around a sixth of its total workforce.
Since its formation in 2013 in the Indian budget hotel space it has quickly grown to become among the world’s largest and fastest-growing hospitality chains of leased and franchised hotels, homes and living spaces.
Initial launched a year earlier as Oravel Stays, a platform to enable the listing and booking of budget accommodations, the business was rebranded as OYO after research of various bed and breakfast homes, guest houses, and small hotels across India, highlighted an opportunity to build partnerships with independent properties to deliver similar experiences to guests.
The OYO footprint is now significant in both India and China, and also extends to many other markets, including Indonesia, Malaysia, Nepal, Philippines, Sri Lanka, Vietnam, even into Brazil, Mexico, the UAE, UK and USA. In fact it claims 42 people check-in to a OYO property across the world every 10 seconds.
It is in its home Indian market where its evolution has been impressive. Its network spanned over 230 Indian cities including all major metros, regional commercial hubs, leisure destinations, and key pilgrimage towns.
OYO has revolutionised the fragmented and legacy-driven budget hospitality space in India by enabling standardisation of services, amenities and in-room experience. Through use of its proprietary apps for inventory-management, room-service, revenue-management and customer-relationship management, it has been able to deliver predictable, affordable and available budget-room accommodation to millions of travellers in the country. This has seen its valuation grow to a hefty USD10 billion!
Over recent months it has become clear that its rapid development was not sustainable. The pulling out of many of India’s smaller markets and cutting its room capacity across its portfolio appears to have been the first step and leads to the latest news of employee cuts.
OYO has already streamlined the organisation leadership “by driving synergies across our business lines and removing duplication of efforts in some of our every day manual processes,” explains Mr Agarwal in his letter to staff. “One of the implications of the new strategic objectives for 2020, is that, like the leadership team, we will reorganise more teams across businesses and functions,” he adds.
“This means that, unfortunately, some roles at OYO will become redundant as we further drive tech-enabled synergy, enhanced efficiency and remove duplication of effort across businesses or geographies. As a result, we are asking some of our impacted colleagues to move to a new career outside of OYO,” he confirms.
OYO’s new roadmap sees an increased efficiency and focus on core businesses and rationalising growth avenues, a stronger focus on profitable locations and buildings and avoiding growth that dilutes margins and a further reduction in operating costs. The path to sustainability will leverage technology and data insights along with using its culture of service to “simplify operations and drive consistent, high-quality execution” and “drive uniform adoption of our own tech products across different geographies,” according to Mr Agarwal.
It is clear that OYO’s journey has come to a fork in the road. The reorganisation brings more negative publicity for the business and adds to recent allegations that it charges hotels extra fees, does not pay hoteliers the full amounts and has unsustainable pricing practices.
At such scale OYO ultimately has been unable to maintain the standardised service concept that has made it so successful and has been reliant on price driving business, but this appears to have not always been profitable business.
The big question is will the changes support its drive to business sustainability or will this junction ultimately mark the beginning of the decline of one of the hospitality sector’s biggest disruptors.