Why Treebo isn’t worried about competition from SoftBank-backed Oyo Rooms

Sainul Abudheen

“Unlike an aggregator, we are a holistic brand that focuses on the bigger picture in the long run and that is our difference”, says Treebo Hotels Co-founder Sidharth Gupta

Treebo Hotels Co-founder Sidharth Gupta

Sidharth Gupta feels that while there were many other budget hotels aggregators in the market when Treebo Hotels was started, none of them are solving the core problem of poor quality. “Everyone was just focusing on aggressively putting their message out there and selling rooms online. It was not the right solution, so the problem was still not resolved and that is why we decided to address it,” the co-founder of Treebo says in an interview with e27.

Despite the aggressive marketing campaigns and ever-going expansion activities from bigger rival and deep-pocketed Oyo Rooms, Treebo has been gradually gaining marketshare with what it claims to be a quality approach. The online budget hotels chain now has nearly 300 properties in close to 60 cities in India, and recently secured US$34 million led by Hong Kong-based investment firms Ward Ferry Management and Karst Peak Capital.

In this interview, Gupta talks about competition, market and the company’s growth and expansion plans.

Edited excerpts:

You started Treebo in 2015 even when your bigger rival Oyo was aggressively expanding marketshare in India. What was the inspiration?

The trigger to start the company was to solve the problem of low quality in a hotel segment particularly in the budget hotel segment. The reason was that at the price point of INR 2,000 there were only standalone type of hotels that were existing and were not providing quality. So we thought that we should build a brand in this space that could change that and provide good experience to the customers.

The sector we operate in is not tapped into at all. They were businesses that had started, but no one was addressing the real problem of quality. Many players who were selling rooms online emerged, but that was not the right solution, and that was not what the market needed. This evidently reflected in poor reviews that they used to get from everyone.

So, while there were other players in the market when we started, we felt that none of them are solving the core problem of poor quality of these hotels. Everyone was just focusing on aggressively putting their message out there and selling rooms online. It was not the right solution, so the problem was still not resolved and that is why we decided to address it.

Also Read: Treebo Hotels raises US$16.67M in funding, plans to expand its network

We currently have a chain of budget hotels across India. As of now, we have about 300 properties in close to 60 cities in the country.

What are the fundamental differences between Treebo and other players in the market?

We are a brand whereas everyone else is an aggregator. Like I said, they only sell rooms online. They basically take few rooms from multiple hotels, and sell them online which is not very different from MakeMyTrip, Goibibo or similar players. We don’t do that. We have nothing to do with a ‘part’ inventory model. We work on an exclusive base with the hotel owners, and take control of the entire experience end to end.

When we offer a Treebo-branded property, there is a lot of effort involved in accumulating that one quality experience. We conduct periodic audits, heavily invest in staff training, get the best suitable vendor support, and apply technology and through that we are able to provide a significantly better experience than what anyone else does and that is what a brand truly needs to stand for. What everyone is doing is really the job of an aggregator. We are not that, we are a holistic brand that focuses on the bigger picture in the long run and that is the difference.

Oyo is far ahead of you in terms of the number of partnerships with hotels. How do you compete with them in terms of acquiring customers?

Acquiring customers is not a challenge because it is a very large market and it is not that you are creating a whole new segment from scratch. People are already travelling, more so in the last few years. You can’t force people to travel, they are already travelling and it is a large market.

When people book hotels they look for the best value of money that is available out there and that is where we score the highest because at that price point there is no one who can offer a better experience than us. So, it is only natural that the customers will come to highest value for money offering player, and that is why they choose us.

We are present on various channels, online as well as offline. Our maximum presence as distributors is on our own website and mobile apps. Our brand is also present on third-party websites like Cleartrip, Yatra, Booking.com, etc. We also sell through offline channels, through our large and successful corporate sales team for corporate customers.

Additionally, we also sell through small offline travel agents. So to sum up, there are multiple channels through which we reach customers, and the reason customers pick us repeatedly is because of absolutely best value of money that we deliver.

From my personal experience, I think Oyo is much better in terms of pricing…

It is very important for one to understand it is a huge market with great potential. It is a US$10 billion market, with over 70,000 hotels, and a lot of dark supply. Additionally, there is always new supply coming in.

There are 1.2 billion domestic trips happening in India every year. The number will go up to 4x in the next 10 years; it will go up to five billion domestic trips.

So what I am trying to tell you is that firstly it is a huge market. Secondly, you need to understand that there is a customer for each price point. If everyone was only looking for cheapest option available then there would be no one business for 5-star hotels that way.

I know India is a price-sensitive market and there will be a large number of people who would always want to book the cheapest option available. But that is not the case for everyone. There is a very large segment of travellers who are not looking for the best price, but are looking for the best value, and that is the difference which is very important to understand.

When you are looking at the best price, you really don’t care about what you will get in that best price. The priority at that time is only the pricing. You don’t care if the bed sheets are dirty, if the AC and the TV are nonfunctional, whether the staff will be rude, or if the bathroom would be unclean. Like I said, here the person does not care about these things, and is just looking for a place to sleep at five hundred rupees. If you are talking about that kind of a mindset, then of course you will book an Oyo or similar lodges.

Also Read: Oyo says it did not acquire Zo Rooms despite claims from its investor SoftBank

In our case, no other player comes close to us with the kind of occupancies we run. We are currently running about 80 per cent occupancy. You can ask the other players what their occupancy is because for a true hotel chain the right metric is that of occupancy and not the absolute number of rooms. If a player has 70,000 rooms on their platform, and even if they are selling 20,000 rooms per night, the occupancy rate comes up to about 28 per cent only.

So the reality is that we can keep debating till the cows come back home on whether people look for price or quality, or who provides quality or not. The important thing from my point of view is that across the 300 hotels that we have today, we are able to deliver a superior price point and superior occupancy. Our average price-point is about INR 2,000 rupees, and our current occupancy is about 80 per cent.

So when you are doing those kinds of numbers, it is a clear indication that people are looking out for a value of money product. INR 2,000 is not super expensive. Of course, if you are looking to the bottom, then you will price your room at INR 399/499, possibly even give them for free and that and that is fine. There will of course be takers for that but like I said, it is a large market and there are all kinds of customers. Some people who are more particular about their requisites, and who are open to spending within the range of INR 1,500 to INR 2,000 and are looking for a great experience at that price point, that is the segment we are catering to.

If there is a customer who is only looking for the lowest price point, and that too as low as INR 400 or INR 500, we are not catering to that customer very consciously and we are fine with it. We choose the segment that we cater to and are very clear about it.

While other players are offering higher discounts, it is absolutely fine with our brand as the pie is large, and every player has some share in it. There are people who will always offer discounts, but due to the large market size, at each price point players will survive. The 5-stars are making money, the 7-stars are making money, even the 4-star/3-star/2-star are making money, so basically all types of players have some customer segment that is choosing them over the other and that is the simple truth of the market.

Can you elaborate on the core promise of true value that your brand provides?

When it comes to a hotel chain, one should judge a hotel chain not by the size of it, or discount offered, or the price it is available at, one should look at them by their rating. That is the best indicator of value. If you look at TripAdvisor, or Booking.com which has verified reviews (TripAdvisor is an open platform on which anyone can write a review but on Booking.com you can only write verified reviews, i.e. if you have actually stayed at that property), you would see that in the budget segment, at roughly the price point of INR 3,000, it is Treebo that has the highest ratings among all the new age as well as conventional players.

Even if you include the likes of Ginger, Ibis, Sarovar and also the likes of Oyo, we have the highest rating among all. Compared to Oyo or similar companies, this is different by a huge margin as their average rating is 6.3/6.4 out of 10 and ours is close to 7.5. I think this is the biggest indicator, and a very publicly available data that indicates the difference in the quality of experience.

As far as components of the experience are concerned, they are the core experience components , i.e. everything ranging from the cleanliness at the hotel, availability of good quality wi-fi and breakfast , a functional AC and TV available, courteous staff members, concern free booking when you actually go to your hotel.

So, it is not like we are providing a lot of freebies, or a lot of extra stuff compared to what other hotels would also promise, but in terms of the quality that these amenities are providing, that is where the big pain point lies. In a general setting, the bed sheets would be torn or the bathrooms would be unclean and the service/staff would be bad or absent. These kinds of issues have always plagued the budget segment and that is exactly what we are solving by significantly improving the quality of each of the amenities.

Where do you see the budget hotel chain market five years down the line?

In terms of the numbers, I feel the market would be around US$20 billion or so in size, growing at a rate of 12-13 per cent per annum. It will continue to be a very large market and the exciting thing is that from the experience of other countries globally what we know is when the per capita income of a country the gross national income (GNI) per capita, when it starts touching the US$1,500 price-point that is where you truly see a breakaway growth in some sectors, which are usually discretionary spend sectors.

The good news is that India has just hit that point in per capita income, GNI is currently at US$1,600 and what that means is now we can truly begin to see a major uptake in people’s ability to spend on travel. This combined with the fact that there is much more social awareness now, thanks to social media where people are posting their pictures of their travel trips and getting inspired. A large number of people want to travel and see undiscovered places, since there is much more exposure today.

So the socio-economic trends together will make sure that the country will continue to be very exciting from from a travel eco system/travel market point of view in the future as well. Like I said earlier, we will at the same time witness our customers becoming more quality conscious, and that works very well from a point of views of providers like us.

Talking about technology, are you already using any advanced technological components?

The reality is that a business cannot be built without technology. To provide great experiences at such a price point, and in such a large and fragmented network is not easy at all. For us, we require the support of a lot of technology in everything that we do and offer, and different types of technology as well.

We use a lot of data analytics, we use AI, and we use IoT technology and a whole other bunch of technology that powers different parts of our business. We have a system which is called the ‘quality management system’, where every single touch point that the guest has at the hotel becomes the fundamental unit of the system and it gets looked at as a data point.

Using that we are able to create a virtual replica of each of our hotel in the digital world, and do an interesting analysis with that to keep track of quality and issues, and make sure that those issues are resolved in time. In our revenue management system, we use deep analytics where are able to and drive high occupancy, decide what will be the appropriate pricing for each hotel at any point in time, how to maximize occupancy, how to maximize pricing.

Oyo Rooms

We also have a property management system that we have given to our hotel operators, you can think of it as the driver app in case of Ola, Uber. Basically a simplistic tablet based solutions that allow the operators to manage the hotel seamlessly and efficiently. These are some examples, but more or less, technology touches every part of our business.

You recently procured your third round of funding. What’s the plan with that? And are you looking at new markets outside India

I think there are four areas where we are our deploying our new funds:

The most important area is that of customer experience, so most definitely, part of the funding will be pumped in to innovation to improve the quality of our offering.

Second area is brand building, where we will be looking at advertising, promotions, brand building et all. We have a TV campaign in place and are focusing on other media as well, so would definitely want to do more in that direction.

Third is expansion. We will be expanding to many more cities in the future and opening new properties, so some amount of funds will go into that.

And finally technology, where we are looking to increase the size of our technology team, we will hire more engineers and product managers and we see them as crucial for the business. We have an earmarked budget for this as well.

We are not looking to go outside India as of now. We are very sharply focused on India opportunity itself. We believe it is a very large opportunity and a lot needs to be done here. That being said, we understand that this is a business relevant to other countries as well particularly developing countries like South East Asia,the Middle East and potentially Africa as well. However, that will happen when the time is suitable for the brand.

What are the greatest challenges that the hospitality industry faces currently?

The challenges are already described from a customer’s standpoint. The biggest challenge is of quality supply that is available, and that is exactly what we are trying to solve. Other than that frankly there aren’t any major structural challenges that we need to worry about. It’s our business to solve the quality challenge and help both the customers as well as the hotelier owners. From overall tourism industry point of view, of course the country could do much better tourism with improved infrastructure so that it becomes easier for domestic as well as international tourists to travel much more. While we are solving one part of it, by taking care of the accommodation, at the same time if the government could also help solve other parts of the tourism infrastructure for example, the places of tourist interest and how they are handled, what kind of experience do they provide, it would be very beneficial. . Even for that matter, in many cases it is hard to get a confirmed train ticket and lot of people in the budget segment do like to travel by train so these are the thing that can further boost this sector and tourism. All of this will marginally improve the state of affairs as far as the overall landscape of travel and tourism is concerned. So per say, there are not many challenges, it is a great opportunity that we have in this market and that’s what we are tapping.

Image Credit: Treebo Hotels

INR 1=US$0.02

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