On a quick glance at the hospitality industry, it may appear that building a hotel brand in India across budget and mid-premium segments could be a difficult task. The reason is obvious- the presence of Oyo that rules the roost in the sector with the financial backing of Softbank. The hospitality company founded in 2013, already has raised over $250 million and amidst cutting a staggering $1 billion funding round from SoftBank Vision Fund, WeWork and others.
Nevertheless, a couple of competitors are not bothered about Oyo’s deep pocket. One of them is Treebo. Unfazed by the competition and size of Oyo, the Bengaluru-based company has been charting out its own story.
After fixing the basic fundamentals of budget accommodation such as providing better customer experience and winning the trust of consumers as well as hoteliers, Treebo is doubling down on its growth this year. “We have added 170 new properties this year and will add 100 more by the end of this calendar year,” told Siddharth Gupta, co-founder, Treebo, to Entrackr.
Driving growth in full stack model like Treebo is not as easy as the marketplace model. Since it onboards hotels on a franchise model and exclusively sell their inventory, convincing hotel owners requires significant effort and time.
“Of course, it was difficult in initial days. However, we have devised a standard process that reduces time and amount of effort in adding new hotels,” explains Gupta. He points out that unlike the aggregation model, Treebo has to take care of every node in the network not network as a whole.
Besides delivering consistent experiences to guests, Treebo also has to assure minimum occupancy to hotels. “We bring new properties only after factoring existing and forecasting demand based on historical data. It helps us to avoid sitting on idle inventory,” says Gupta.
Roping in auto-drivers to Paanwallas as booking agents
Treebo generates about 50 per cent demand from the offline channels including corporate, travel agents and unorganised stakeholders such as an auto driver, paanwallas and tauts. While corporate contributes 40 per cent of overall booking via offline, travel agents generate remaining 10 per cent.
The company claims to book about 2,40,000 rooms every month. Given that Treebo charges about 2,100 (including taxes) per room, it generates about Rs 48 crore in revenue on a monthly basis.
On contrary, Treebo had reported a 10X jump in revenue to Rs 20.6 crore in FY17 from Rs 2.3 crore in the preceding fiscal. Meanwhile, net loss ballooned to Rs 73.5 crore from Rs 25.1 crore during the same period.
Recently, the company has started roping in unorganised stakeholders such as auto-rickshaw and cab drivers, individual agents and small shopkeepers. “In many tourist centres as well as tier II and III cities, such offline elements drive a significant amount of last minute booking. We want to tap them as they often help customers with their travel bookings since many of these customers do not make prior bookings,” adds Gupta.
It offers a separate lite weight app ‘Hero’ to these offline agents. The app allows those working agents for Treebo to set commission on top of actual price point.
Before signing the contract with hotelier Treebo asks them to improve certain operational aspects including interior. However, many don’t have the capital to execute these renovations. “We have partnered with NBFCs and banks. They fund the credit requirement for hoteliers and we pay them back from the hotel accounts,” says Gupta. This essentially highlights that Treebo has an asset-light model.
As we said in the beginning, building a hotel brand in the budget and mid segments has turned difficult because of Oyo’s financial muscle. Since this space is so unorganised and mired with insufficient supply, several players can prosper. After delisting from largest OTA MakeMyTrip, likes of Treebo and Fabhotels have been facing issues from the demand side.
Entrackr’s sources indicate that MakeMyTrip used to drive about 30 to 40 transactions for Treebo and Fabhotels. Undoubtedly, delisting must have inflicted severe injury to their usual business. MMT delisted the duo as Oyo made a comeback on its platform. Delisting Treebo and Fabhotels were one of the many conditions from Oyo side.
Nevertheless, Treebo claims to have brought back lost demand (post delisting from MMT) quickly. Recently, Paytm also had re-launched hotel vertical, and listed Treebo as well as Fabhotels as partners. The SoftBank-backed company is expected to fetch a decent demand for them.
Treebo’s approach appears different from Oyo and Fabhotels as it follows the asset-light model. Providing renovation and cash flow credits are also a sort of unique offerings to hoteliers. On the lines of e-commerce, the budget hotel segment is large and will accommodate multiple players.
Unlike several other segments in the online space, hotels brands would take many years from now to evolve as winners. It’s a long haul game. While Oyo has an access to unlimited capital and hence in domineering position, it would be interesting to watch how Treebo creates space for itself.