Yihao International Hotel

ChinaTravelNews, Yumi Zou - When OYO Hotels opened its first property in China in November 2017, no one could have imagined that the Indian startup could sign more than 6,700 franchised hotels that have a total of 310,000 rooms in a short period of time (as of February 2019).

At present, OYO China has more than 6,000 employees. Its CEO, 25-year-old Ritesh Agarwal, and the majority of his executive team-members did not have any experience in China’s hospitality industry.

On September 25 last year, OYO obtained USD 800 million investment led by Softbank Vision Fund, and a commitment of an additional USD 200 million. The company said it would direct approximately USD 600 million into expanding its operations in China.

If OYO spends RMB 30,000 on soft furnishing of each hotel, and pays an average annual salary of RMB 100,000 to its 6,000 employees, its total cost would reach nearly RMB 800 million. It was reported that OYO China has already made RMB 1.5 billion strategic investment in China by now. Is the hotel company playing it right in China?

ChinaTravelNews visited OYO’s office in Shanghai and spoke to Wilson Li, OYO China’s chief financial officer and partner.

Where did the money go?

Prior to joining OYO in January, Wilson worked in China's largest car rental service provider CAR Inc. as CFO and COO for four years, responsible for corporate accounting, financial assets, operation, risk control and asset management. Immediately after he took on the current post, OYO announced it would invest heavily in China.

About USD 600 million was deployed to building a team. In less than six months after moving from Shenzhen to Shanghai, the company has built a team of 2,000 employees based at OYO’s headquarters.

OYO doesn’t require its employees in China to have hotel industry experience. “Smart people are what we’re looking for, and previous experience in the industry is a plus,” said Wilson.

Sam Shih, OYO China’s new Chief Operating Officer, is an example. He was the Chairman and COO of AccorHotels Greater China from 2011 to 2012, before which he worked as the managing director for Red Bull’s business in Asia Pacific in 2008-2011, and vice president of PepsiCo Greater China in 1990-2008.

The directors of other core units like business development, engineering, customer growth, technology development or human resource weren’t hotel professionals, even though they did have stellar resumes.

Young, vibrant and highly-qualified fresh graduates are considered ideal candidates for frontline hotel operating officers.

Manpower aside, renovation and soft furnishing are also consuming a huge part of the funding proceeds. Mr Agarwal told 36Kr that hotel refurbishment and infrastructure construction would cost half of the USD 600 million raised. Wilson said that OYO had invested about RMB 200 million in these areas last year.

Another bulk of the investment goes into the development, update and maintenance of its mobile application, WeChat miniprogram, PMS, CMS and other systems, in addition to the costs of technicians. According to Wilson, OYO China did not mechanically duplicate its Indian version of PMS, and all the core systems were independently developed. More than 90% of its franchised hotels now have non-exclusive and free access to its PMS.

Most OYO properties in China are franchisees, mostly in provincial-level cities except Beijing and Shanghai. No more than 100 hotels in its portfolio are directly operated or managed.

OYO is known for its huge early-stage investment, rapid expansion of its team and its scale, but that is not necessarily an auspicious start.

Wilson admitted that OYO had only reached 20%-30% of its targets for project development, transformation, operations management and distribution capabilities. “The value of OYO will be delivered if we could achieve 60% or even 80%.”