Oyo, which entered the market with an aim to disrupt the affordable hotels market, has now changed its business model. The company, which operated as an hotel aggregator till now, is now pivoting to franchise model.
The company will now operate hotels under its own brand name instead of just aggregating the hotels on its platform. The move is mainly to reduce operational costs and improve serviceability.
The hotels, which were a part of the aggregation model, have now been converted into franchises, says the company. Ritesh Agarwal, founder and CEO of Oyo, said:
In the last two years, we have evolved our business to 100% exclusive franchise, manage or operating. We do not anymore do aggregation and have become a full-scale hospitality company.
The franchise model will give Oyo control over the day-to-day operations, giving boost to its intensions of improving the consumer experience and have a better repeat rate.
Ritesh Agarwal announced the change of its business model in Hyderabad on the sidelines of the launch of its engineering centre in the city. This is Oyo’s second technology development centre in India after the one in Gurgaon. He added:
Having one Oyo captain at hotels where we have five to 15 rooms or so pushes up the operational cost. However, with the same number of resources at a fully-operated hotel, we are able to keep the cost under control and it also improves serviceability.
The company started reducing dependence on the aggregator model following reports of malpractices by a few hotel owners, which had also led to huge cash burn for the company. It also received lots of flak on social media following poor customer service, including quality of inventory in some parts of India.
Oyo currently claims to be having 70,000 rooms listed on its platform across India, Malaysia and Nepal. So far, the company has raised around 2,901 crore ($450,000,000) in multiple funding rounds.
Earlier this year, in September, the company raised ₹1,600 crore funding from SoftBank Vision Fund and Hero Enterprise. The funding round was followed by another ₹64 crore round, which was raised from China Lodging Group, in a strategic deal.