FORT LAUDERDALE, FL—Hotel operators continue to underestimate the support brands can provide to under-performing assets, said Ritesh Agarwal, founder of Oyo Hotels & Homes, the second-largest and fastest-growing hospitality chain of leased, franchised, operated and managed hotels in the world, during a closed door roundtable discussion. Agarwal—who is also one of Hotel Business’ 10 to Watch (see page 20)—was featured speaker at the event alongside industry veteran Lee Pillsbury.
The event was produced by Travel Conversations LLC and attended by many of the top investors, brand executives and thought leaders in the travel industry.
“When we think about underlying mid-market challenges across the world, the problems are the same,” Agarwal said. “These properties are not managed well, they aren’t using data for daily decisions, and they have capital needs that hamper their cost structure. Band-aid solutions cost you more in the future. Our goal is to fix these underlying assets using smart risk-management strategies, however we need to.”
Agarwal’s Oyo made a name for itself in India, where the company tapped into data science to invest heavily in budget and economy hotels’ interior design, operating efficiencies and technology, improving revenue management practices on a property-by-property basis. Oyo officially entered the U.S. market this past July, where it quickly upgraded 200 hotels. The company has stayed busy, with Agarwal claiming Oyo opens one-and-a-half hotels each day.
“When we came to the U.S. for the first time, we saw a few things that excited us,” Agarwal said. “Fundamentally, we saw many assets that needed capital, particularly in the midscale and economy segments. They have PIPs coming, and they need to refinance these assets, but how do they do that when they must invest in PIPs? We realized we needed to do a lot more to provide value to asset owners. Now, we have upgraded 200 hotels and equipped them with dynamic pricing technology.”
“A start-up will spend every dollar it has,” Pillsbury said. “Generally speaking, the start-ups that had to live hand to mouth have been more successful than the ones with a champagne pocketbook.”
Pillsbury and others at the meeting grilled Agarwal on the potential for Oyo to disrupt the industry in a massive way as it intends to do—while also living up to its rich valuation and high global expectations.
According to Agarwal, Oyo’s humble beginnings aided the company as it launched into international expansion. The company frequently collects comparisons to other successful start-ups of the day. When considering the collapse of overnight successes such as WeWork, it shares the same anxieties as well. Early challenges led Agarwal and his team to make tough decisions about where to put available capital, and sometimes this meant working without pay. Pillsbury said these early lessons served them well.
During the Travel Conversations event, Agarwal and Pillsbury addressed innovation, disruption and challenges going into 2020 in a rapid-fire exchange with 30 senior hospitality and real estate executives representing companies such as Radisson, Choice Hotels, Highgate Ventures, Softbank Investment Advisers and more. The ending of the current cycle was an early topic of conversation, with Pillsbury providing a trenchant overview of where the industry has been in the past 10 years and where it is going.
Agarwal stated that outside of black swan events the industry is expected to stay on track. “As long as any dips in RevPAR remain above hotel revenue, we are good,” he said. “Historically, with the last few recessions that was the case.”
Even so, simply staying the course will require investment. As Pillsbury pointed out, historically, new hotels win out over the old. Elevating aging properties with modern design and technology are the keys to increasing revenue and remaining competitive in the long term.
“In some competitive sets, when you get out of bed in the guestroom, you put your shoes on,” he said. “Can you take a property like that and bring it up to the equivalent of a new hotel at a reasonable price? That is the key here.”
Whither disruption and change?
Agarwal is confident that he can improve any hotel with the right positioning, as long as they are willing to work with his terms. Hoteliers that work with Oyo pay off their investment over time, but the company doesn’t put any debt on its assets. Due to the structure of these relationships, Oyo makes money if hotels are successful, and stands to lose everything in a transaction if metrics don’t improve.
“If you have zero business after [our partnership], we lose money,” Agarwal said. “If you thought a hotel’s occupancy was going to be 0%, you wouldn’t have bought it. Comparatively, if you thought occupancy would drop 15% during renovations, you would plan for that. We plan so that even at a high level of occupancy loss, we can offset that after improvements, and make your money back.”
While Oyo has attracted a great deal of interest for its position as an industry disruptor, Agarwal doesn’t like to dwell on this aspect of his business. He estimated that new disruptors appear in every industry once per decade to shake up established norms, and his company is simply the latest to attract attention.
“Unfortunately, or fortunately, good ideas are a dime a dozen. Real value comes from execution,” Agarwal said. “There was a lot for us to learn as a young company with high growth, but anyone can google Oyo’s annual report, which shows our EBITDA and net losses have been cut by half each year. Time will tell, though.”
In looking back at his journey so far, Agarwal said he is thankful for the support and mentorships he was given access to, and reflected on how they impacted his journey in a positive way.
“I’m lucky to be born in this generation, and to get the support I have,” he said. “At 19, I had an opportunity to become a part of the Thiel Fellowship. If not for that, I would be running 10 hotels in New Delhi, which I would also be very proud of. Also, naivete has helped me a lot. When you are wise, you can often only see everything that can go wrong. If I knew everything I know now before I started Oyo, I probably wouldn’t have done it!”
Pillsbury agreed. Among other things, he has served as the youngest senior executive in Marriott’s history; founder of the successful private equity/real estate firm, Thayer Lodging, and the founding partner of Thayer Ventures, which invests in future industry innovation.
Pillsbury is slated to be honored with a Lifetime Achievement Award by the Hospitality Sales and Marketing Association International (HSMAI) in January. HB