450 hotels in Brazil already operate under the Oyo flag. Photo: Oyo Brazil

Unicorn that is already the largest hotel chain in Brazil seeks balanced growth

Head of Oyo Brasil talked to LABS and said that the globally overhauled startup now aims sustainable expansion and profitability in the country

João Paulo Pimentel

10.Mar.2020 19:15 BRT
UPDATED 11.Mar.2020 12:59 BRT

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Startup debuted in Latin America last year, when it started operating in Mexico and Brazil;
The firm partners up with independent hotels and provides management support and proprietary technology to optimize rates.

A company that arrived in Brazil less than a year ago without fanfare is already the largest hotel chain in the country in number of establishments. Indian startup Oyo has impressive numbers for such a recent operation: almost 500 hotels, which together offer 13,000 rooms, already display their flag in more than 40 Brazilian cities. There are 700 employees working today in the country division, which started a few months after the company’s debut in Latin America, made in Mexico, in 2019.

The head of Oyo Brasil, Henrique Weaver, suggests that from now on the expansion will be more calibrated. “Our first objective is sustainable growth, to continue adding hotels but guaranteeing sustainability, combining the profitability of the hoteliers with ours,” he said in an interview with LABS.

The desire for balance is understandable. Founded in India in 2013 by CEO Ritesh Agarwal, Oyo Rooms recently laid off 5,000 employees around the world to cut costs and keep growth. The loss in the last fiscal year reached $335 million, six times greater than the one recorded in 2018. In a report to investors, the company attributes the result to investments made in new markets. Revenues grew 4.5 times and reached $951 million during the same period.

The company has been targeted as repeating the steps of WeWork, which, like the Indian startup, received investments from SoftBank – the Japanese group currently owns 46% of the company. In the case of Oyo, the layoffs occurred mainly in India, the U.S. and China, one of its largest markets, strongly affected by the coronavirus outbreak.

In 2019, the startup received $1.5 billion in a round led by SoftBank, and it was subsequently valued at more than $10 billion. Oyo currently operates 43,000 hotels and 1 million rooms in more than 800 cities in 80 countries.

Below are excerpts from Henrique Weaver’s interview to LABS:

Oyo laid off many workers and underwent a recent global restructuring. Did it affect Brazil?

Oyo was founded just six years ago and has grown very quickly. It is by far the fastest growing hotel chain in the world. With this rapid expansion, we had to make adjustments. In 2020, our biggest goal is sustainable growth and profitability. To this end, we reviewed our way of operating in several countries and optimized the number of cities in which we are present in each country, targeting those that can add value. Oyo underwent organizational changes and adjusted the size of its operation. It was a difficult process, it involved people, but that process has been completed. We are now better positioned to continue growing sustainably.

What is the partnership model that Oyo establishes with the hotels?

Oyo is a young startup, and in Brazil we have been operating for less than a year. We partner up with independent hotels, with establishments that work well but find hard to compete against major chains. Oyo makes an initial investment in the hotel to improve the guest experience. We are a mix of tech and hospitality company, which allows us to know where to invest first, to maximize returns and guest good perception in relation to their stay. We also offer an expertise of best practices in hotel management, from cost control to overbooking issues. Thirdly, we offer revenue management, which we see working very well both abroad and here in Brazil.

Henrique Weaver, head of Oyo Brazil. Photo: Oyo Rooms

How is technology applied to the operation?

Oyo has proprietary algorithms developed by the company. Through machine learning, they indicate minute-by-minute the ideal price for each hotel, city and situation. We have a team that I might claim to be one of the strongest in revenue management in Brazil, and they also work on the tropicalization of our algorithm.

Does the Oyo hotel use a dynamic rate?

Yes, and it varies a lot according to an array of data points, such as location, style, hotel rating and time of day. It changes from second to second to guarantee the optimal price, aiming the best RevPAR [Revenue per Available Room] at the end of the month, which improves the relationship between offered rooms and pricing. We want the hotelier to earn more money by partnering up with Oyo than before. We aim to increase hotel revenue and offer the best accommodation experience at an unbeatable cost.

What is the average amount that Oyo invests in hotels?

Our transformation team is made up of architects, engineers and designers. We have minimum quality standards that every Oyo hotel must follow everywhere. Before entering a contract with the hotel, this team makes an inspection that informs the investment. The amount we invest depends on the gap between the hotel’s situation and Oyo’s standards, so it varies a lot.

There are hotels we call plug-and-play, that basically just demand branding, others need a lot of work and some we even deny the partnership because it would require a very large investment.
Henrique Weaver, head of Oyo Brazil.

What is the cost for the hotel?

We charge a percentage of its revenue. Food and drinks and events do not count to these figures.

Does the associated hotel use the Oyo brand?

Yes, it will add Oyo’s name next to the original name. We maintain the essence of the hotel, we do not aim for something homogenized, something that would be the same everywhere. We have comfort standards, for example, for mattress sizes, sheet quality etc. But we have hoteliers who are passionate about their business and who sometimes want to maintain the way they receive guests and even decor, in some cases.

Are there specific expansion goals for Brazil?

We don’t disclose a goal in number of hotels, but we will be present in the most important cities in Brazil. We are now in more than 40 Brazilian cities, in almost all states.

Does the Brazilian hospitality market have any unique characteristics?

There are many similarities with the Indian and Chinese markets. They are all very fragmented. If you compare them to developed economies, like the United States, these markets have a higher proportion of independent hotels, which makes them even more interesting, since we can add value to a large number of businesses.

The big difference we see here: the percentage of international guests is much lower in Brazil than in other major markets. Here, guests are mostly Brazilian, over 90% of the total. The data shows an opportunity to stimulate tourism in Brazil.
Henrique Weaver, head of Oyo Brazil.

Oyo is well known in India and China, and many hotels that were previously limited to the domestic market are now, with our backing, being advertised worldwide, in markets with billions of people. Increasing the share of international visitors is something that excites us a lot. It may improve not only the results for the hotelier, but of the economy as a whole.

How has the coronavirus outbreak affected the company?

We restricted business trips to affected areas and offer support, information and guidance. In China, which is way more affected, we work closely with hoteliers, ensuring the necessary support. Oyo’s CEO donated a full salary for victim care last month. Here in Brazil we are working so that hoteliers are well prepared and oriented to deal with the situation.

Oyo partners up with hotels that offer in average 20 to 80 rooms. Photo: Oyo Brazil

Does Oyo seek to serve a specific kind of customer or hotelier?

Our base is quite wide, but we appeal to millennials, a generation that seeks quality, is demanding, but also wants great value for money. But we serve all different ages. Among the hotels, our focus is on the independent ones, most of which have between 20 and 80 rooms.

Is the operation in the rest of Latin America similar to that of Brazil?

In the Americas, we operate in the U.S., Mexico and Brazil. In Latin America we arrived last year, Mexico and Brazil have the same business maturity. In Mexico we started a few months earlier. But our focus is to guarantee scale in these operations, to grow robustly, before seeking other expansions.