Have you ever reserved a hotel room online and then showed up only to discover that the pictures are sparkling, but the room is not? Well, let’s just say it was just a “surprise party gone wrong”? In a world full of vagaries of low-budget hotels, particularly in a nation such as India, the vast story about the Oyo Rooms would be valued. Get your coffee, we are going to swim in a start-up story with great ambitions, greater obstacles, and one of the most incredible stories of the comeback.

How did OYO come into existence?

We start our story not in a Dolce and Gabbana boardroom but in the adventurous mindset of an adolescent Ritesh Agarwal. An energetic, inquisitive, almost unsophisticated teenager with a backpack and an unquenchable curiosity about the way things work. At an early age of 17, Ritesh crossed India and resided in thousands of low-end hotels. What he had discovered was a wild west of inconsistency: there were good places, and there were less good places. Imagine squeaky beds, dusty rooms and the sometimes dubious odour.

It was not simply a matter of cheap rooms but rather that there was no standardisation. Individuals desired a cheap form of accommodation, yet they required some standard of quality and consistency. Ritesh’s “aha!”  moment came as a mixture of his personal frustrations with travelling and seeing the global success of such companies as Airbnb and adapting it to the unique Indian market.

And so, in 2013, the seed was planted. It started as Oravel Stays, which was an attempt to be a budget accommodation aggregator. However, Ritesh, who was an innovator, soon understood that it was not enough to list hotels. To ensure quality in a real sense, he had to collaborate with the hotels and make them upgrade to be branded in the same standard. This gave rise to the establishment of Oyo Rooms in 2018 (a rebrand that indeed solidified its mission).

The Rocky Road: A Rollercoaster of Rapid Growth and Hefty Losses

By 2015, Oyo had gone viral with more than 10,000 rooms. It had gone to his head – the growth curves were like rockets in the air! Having meteorically shot upwards, the situation became complicated.

Cracks were beginning to form, however, under the surface. The high growth rate came at a price:

Nightmare quality control- The sheer pace of the control meant that the consistent quality of thousands of various properties was a burden. The female grievances were like a monsoon- dirty rooms, broken facilities and a contrast between the promises made online and what was offered on the ground. The aggressive nature of the sales pitch by Oyo would, at times, make it seem like they were offering more than the hotel owners could give, thus creating friction and trust problems.

Massive Cash Burn: Oyo was burning cash as a teenager does with a new credit card to fund this breakneck expansion. Marketing blitz, improvement of technology, and the cost of operation itself stacked up. Losses have expanded to an astronomical 350 crores in FY 2017.

The 2019 Cash Crunch: This was one of the closest moments that Oyo came to the bottom of the barrel. The business was haemorrhaging, and the cash flow was narrowing. Investors were frightened and the critics were loud, and the future was bleak. Was this dream of high hopes becoming a fable?

The ultimate journey from losses to Lean, Mean, Profit Machine

When it was time to believe that Oyo would go to the graveyard of start-ups, something amazing occurred. In the years 2020-2022, Oyo began its unbelievable pivot. The mantra of growth-at-all costs was changed to the aspect of sustainable operations and profitability. The level of the first shock of the COVID-19 pandemic, which slightly suppressed their IPO hopes, paradoxically turned into a shaker to changes. As travel was brought to a stop, Oyo was forced to live through reinventing itself.

Ruthless Cost-Cutting: This was a significant change of direction. Oyo has been on a zero-based budgeting, where all expenses were questioned. Their marketing budget went down by an astounding 70 per cent, and their operational expenses were streamlined all around. It was as though a feast to a healthy meal that is planned very well.

Efficiency-related Tech Upgrades: Oyo invested in advanced AI and machine learning tools that enabled the company to manage inventory more effectively, optimize prices (dynamic pricing turned into a massive asset!), and demand forecasting. This did not merely involve some fancy algorithms; it was about every booking, every room.

 Oyo began paying more attention to higher-rated properties as well as guaranteeing an improved guest experience. They also had an effective exit strategy for less profitable global markets to enhance their focus on the core markets, such as India and some parts of Europe.

Recognising that hotel owners are their lifeline, the company increased their efforts to establish trust, enhance communication, and appropriate partnerships.

The results started to show. After years of massive losses, Oyo has reached an important milestone: breakeven in FY2023. And the good news kept on with the announcement of profits till FY2024! It was an amazing turnaround, and it was an indication that, despite the craziest of adventures, the outcome is happy and profitable.

Well, what was it in this magic formula of Oyo’s comeback? Just imagine that it is a well-thought-out dish, in which each ingredient and each process counts. The following are some of the major changes and the reasons why they are successful:

Statistics indicated high leakages in revenues because of the lack of dynamism or ineffectiveness of pricing – The firm deployed advanced AI-based software that evaluated real-time demand, nearby occurrences, rival pricing, and even weather variations so that room rates could be set dynamically. This guarantees the optimum number of occupancies and the best earnings for the hotel owners.

Seeking to diversify into multiple geographies resulted in a watered-down focus and higher losses- Oyo left markets that were neither profitable (such as China and certain regions of the US) to concentrate on India and Europe, where they had a better brand presence and operational competitive advantage. This was a difficult but needed decision.

The cost drivers were a large population of overstaffing and inefficiencies– the zero-based budgeting mantra espoused by Ritesh drove through the entire department, messaging on each role and each rupee. The company concentrated on strategic layoffs and reorganised teams to have a more efficient and agile workforce.

Such changes were not merely an aspect of making tweaks but an overhaul of the whole business model. The moral of the story to the would-be entrepreneur? Expansion is thrilling, yet sustainable expansion, which is founded on a solid foundation and flexibility, is what creates an enduring legacy. You have to do it slowly to make it faster.

The Future Chapters of Oyo… The buzz has come back, and Oyo is excited about it!

The whispers of a relaunch of the IPO are increasingly becoming loud after numerous delays. The market appears to be more open to the public offering by Oyo because of its sustained profitability and its leaner operation. Nevertheless, due to the competitiveness of the hospitality sector, Oyo will remain competitive with global market competitors, such as Airbnb and Booking.com, and domestic competitors. It will depend on their ability to be innovative and establish good relations with guests and the owners of the hotels.

What is your worst / best budget hotel experience? Write something in the comments below, we want to know what you think!