MYSTERY OF THE OYO ROOMS
First, it laid off about 20 per cent of its 12,000-strong staff in India in end-2019, and cut down 5 per cent of the 12,000-strong workforce in China as part of a restructuring. In India, it pulled out operations from 200 of the 600 cities. Just as the world was coming to grips with the sudden scale-down at the fast-growing Oyo Hotels & Homes, more retrenchments were announced at the US operations.
Meanwhile, the anger and dissatisfaction among hotel partners continues to swell. Reports suggest that nearly 500 hotel partners, of about 20,000, have snapped ties with the company since April 2019, alleging hidden charges and lack of transparency (though Oyo claims its partner churn is less than 1 per cent). On top of that, earlier this year, the Income Tax Department arrived at its Gurgaon headquarters to inspect the books of accounts, which the company called a “regular TDS audit”.
Since the beginning of 2019, a raft of bad news emerging from Oyo has raised a question mark over the company’s astounding growth story. Last year, a major controversy erupted around Founder Ritesh Agarwal’s decision to buy back shares at a whopping $10 billion-valuation from the money lent by three Japanese financial institutions that are reportedly close to its lead investor SoftBank. The share buyback doubled Oyo’s valuation – and made investor SoftBank less miserable after the WeWork debacle – despite no major improvement in the underlying business.
Oyo’s business model of capturing marketshare and building scale is hinged on enormous cash-burn – primarily funded by marquee investors such as SoftBank, Sequoia Capital, Lightspeed Venture Partners, and most recently, Airbnb. The hotel chain has been reporting net losses for several years in a row (see table Cracks in the Wall). Losses increased from $52 million in FY18 to $335 million in FY19, according to the company.
With the firm still to declare a deadline to profits, cost cuts became inevitable. The dramatic cut in staff strength in India and abroad point to a desperate effort to slash costs after an unsuccessful attempt at building a roadmap to profitability.
Has the unique hotel platform begun to falter after an unbridled run?
After all, these events undermine the Oyo story its founder Agarwal had envisaged. Agarwal told Business Today in a meeting last year that Oyo was on its way to becoming the largest hotel chain in the world by 2023 (by room inventory) led by three pillars: customers, employees, and the leadership team. But in a recent meeting with BT, Oyo’s newly-appointed CEO (for India and South Asia), Rohit Kapoor, hinted that the ambition may be out of reach now: “Everybody has a right to change their plans”. So, has Oyo given up on its grand plans?
Caught Speeding
There are indications that Oyo may be faltering. While there was always a question mark over its break-neck speed of adding hotels to the platform at the expense of service quality, the expansion over the past three years has hit a speed breaker, especially in India and China,
