Analysis of OYO Hotels' Expansion Strategy in the USA Market
OYO Hotels is looking to expand successfully in the USA market by partnering with unbranded hotels, adapting its core franchise model, and aiming for an ROI of 3% in a 4-year period. The key issues include the new franchise model, finding key partners, bridging cultural gaps, dealing with unknown brands, and establishing a substantial presence in the US market. In order to succeed, OYO needs to leverage its strengths, address its weaknesses, and cater to the US market's unique demands while improving its public image and founders' reputation.
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OYO Hotels USA: Coming to America PRESENTED BY PRESENTED BY PRESENTED TO PRESENTED TO HEC CONSULTING GROUP HEC CONSULTING GROUP OYO HOTELS BOARD OYO HOTELS BOARD ADITYA BAID LORETTA CHAN EMILIE L.CAYER NEHA SHARMA
How can OYO Hotels expand successfully in the USA market? KEY UNDER QUESTIONS DOES OYO STRATEGY MAKES SENSE? WHAT CHALLENGES OYO FACES AND HOW TO OVERCOME THEM? WHAT ARE THE PROSPECTS FOR THE FUTURE? IS THIS BUSINESS MODEL SUSTAINABLE? DOES THE BUSINESS MODEL TRANSLATE TO THE AMERICAN MARKET? SHOULD JAKAYLA MICHEL APPLY FOR A JOB? Problem Analysis Recommendation Implementation Conclusion
What are we proposing? Partner with unbranded hotels reaching 126K new rooms in 4 years (by 2023) OYO core franchise model adapted to the USA market ROI of 3% in 4 years period Problem Analysis Recommendation Implementation Conclusion
Agenda 1. Analysis of OYO s current market position 2. Alternatives 3. Recommendation to OYO 4. Implementation 5. Financials 6. Risks 7. Conclusion Problem Analysis Recommendation Implementation Conclusion
What are the key issues? New franchise model Finding key partners in the USA Unknown brand Cultural gap Small presence on the US market US market not used to this model To make business with US market different from the ones OYO s present in Problem Analysis Recommendation Implementation Conclusion
What is OYOs current global positioning? Internal positioning Strengths Weaknesses Perceived as a trusted brand in developing countries (India and China) Extensive use of technology and intuitive app Appealing offering to hotels Increase in revenues (100% within 6 months and 70% occupancy rate) Trained staff (own training school) Property makeover Review transparency Financial Support Technological pricing tools Lean business process Fast paced signup and agile International presence US presence (50 hotels in 35 cities) Unique franchise model with full services Needs of efforts to standardized for upfront payments Customer complaints Public image and founder (may cause issues with IPO later) OYO needs to cater to the US market by using its core strengths and address its public image problems Problem Analysis Recommendation Implementation Conclusion
What is OYOs current global positioning? External positioning Opportunities Threats US market development Potential of 18,000 unbranded hoteliers 10th consecutive year of growth and 5th record year for hotel occupancy (66%) Tech-savvy millennials & budget oriented all over the world, but especially in the US Can tie up with higher-quality hotels that are loss leaders US competition (Wyndham, Hilton, Holiday Inn) Recent negative perception of Softbank US franchise operating differently from OYO s model OYO needs to take advantage of the US market potential and needs to make its unique offer known to this market Problem Analysis Recommendation Implementation Conclusion
What does characterized the US market? CAGE distance framework CULTURAL ADMINISTRATIVE GEOGRAPHIC ECONOMIC Service expectations different from developing countries Millennials expect quality and affordability Social concerns about growing startups Tech-savvy population Higher trust for cheap hotel options All types of tourist segments (families, millennials, backpackers) Seasonal tourism Many hotel options (models, B&B) Different legal and tax systems Different states with their own sets of regulations Highest presence of government Large country with tourist routes and national parks Large distance and geographies to cover Higher operation costs High increase in the hotel market size Franchise model new to the US market Problem Analysis Recommendation Implementation Conclusion
What are the options? 1. Partner with a complementary company in the US (Days Inn by Wyndham or Holiday Inn) 2. Offer franchising and adapt the business model catering to the US market 3. Own hotels and properties Problem Analysis Recommendation Implementation Conclusion
Criteria Reaching operational efficiency (cost effective) Implementable by 2023 Increase percentage of market share Sustainable on the long run Problem Analysis Recommendation Implementation Conclusion
Which option should OYO go forward with? Reaching operational efficiency (cost effective) Implementable by 2023 Increase percentage of market share Sustainable on the long run 1. Partner with a complementary company in the US High Medium Medium Medium 2. Offer franchising and adapt the business model catering to the US market High High High Medium 3. Own hotels and properties Low Low Medium Low Problem Analysis Recommendation Implementation Conclusion
Which option should OYO go forward with? Reaching operational efficiency (cost effective) Implementable by 2023 Increase percentage of market share Sustainable on the long run 1. Partner with a complementary company in the US High Medium Medium Medium 2. Offer franchising and adapt the business model catering to the US market High High High Medium 3. Own hotels and properties Low Low Medium Low OYO needs to cater to the US market by leveraging its core strengths through its unique franchise model to increase its market presence and reach its overall profitability goals Problem Analysis Recommendation Implementation Conclusion
What are we proposing? Offer franchising and adapt the business model catering to the US market Hire experts and sales rep to expand in the US market Revamp and rebrand Hooters Hotel Find new partners (franchisee) Target tech-savvy millennials to offer affordable accommodation Adding technology to the existing ones Problem Analysis Recommendation Implementation Conclusion
Hooters as a loss leader Rebranding Hooters to OYO Life (Appeal to millennials through wokeness ) Shift from Hooters model to a more tech focused upscale hotel establishment Built in customer base from Indian and Chinese consumers that know the brand Addition of Indian restaurant with vegan and vegetarian model Use of the technology like unlocking rooms and self-checking through the app Use of Solar Technology Problem Analysis Recommendation Implementation Conclusion
Marketing Plan A brand that is future focused Use the switch of the Hooters to appeal millennials by being future focused Adding vegetarian/vegan restaurants in franchises Partner with food vloggers and lifestyle vloggers to talk about talk about OYO hotels Referral system that rewards users for bringing new users Problem Analysis Recommendation Implementation Conclusion
Adding Franchise Partners Use the Patel Motel Cartel (Indians own 70% of motels in the US) With Visa issues for Indian immigration, they need more streamlined servicing with fewer employees Sales representatives with high commissions based on addition of new partners Problem Analysis Recommendation Implementation Conclusion
Implementation Plan Item 2020 2021 2022 2023 1H 2H 1H 2H 1H 2H 1H 2H New franchisees Identify potential new franchisees Hire new sales representatives Negotiate franchisees Launch new franchisees Promotion Develop a customized app for the US Launch the new app Hooters Hotel in Las Vegas Renovate and rebrand Hooters Promotion Problem Analysis Recommendation Implementation Conclusion
Finance: Current status of OYO Item (In US$ million) (Note: US$ million = INR CR / 7) 2018-19 (Base year estimates) 703 - Loss of 10.4% - Growth in revenue of 3.5x Realized value Revenue Costs Losses 212 (41) (73) How to reduce loss and increase revenue in the US market? Problem Analysis Recommendation Implementation Conclusion
Finance: Assumptions for new franchisees 1. OYO will be able to attract the following number of US unbranded hoteliers to join the network: Year 2019-20 2020-21 2021-22 Total Number 90 180 360 630 2. The average number of rooms of per hotel is 200 and the average daily rate is $85 [i.e., (current maximum of $110+current average minimum$60)/2]. 3. The average investment per hotel room for renovation is $1,000 (i.e., maximum of $2,000/2). 4. The average minimum guarantee of the annual revenue per asset owner is assumed to be at 70% of the annual revenue which will be $3.04 million (i.e., $85*200 rooms*365 days*70% i.e., 2019 s occupancy rate*70%). 5. For OYO hotels, 50% of sales will be made through its home website (i.e., no booking fees to the exchange) and 50% will be through exchanges (i.e., a 15% booking fee would be paid to the exchanges). Problem Analysis Recommendation Implementation Conclusion
Finance: Assumptions for new franchisees 6. OYO will be able to achieve an 80% occupancy in the US from 2020 thanks to an increasing market brand familiarity and extensive use of technology in pricing and occupancy analysis. 7. As such, OYO will receive the following revenue streams: 10% of gross revenue (excluding booking fees if applicable) 20% of additional revenue share on incremental revenue over minimal guarantee amount Year Number of franchisee hotels (cumulative from 2020) Average annual hotel sales (80% occupancy rate; $85 per night; 200 rooms per hotel) Minimum guarantee amount (70% occupancy rate) OYO's share: 10% of gross revenue OYO's share: 20% of additional revenue share on revenue over minimum guarantee amount OYO's total revenue 2019-20 2020-21 2021-22 2022-23 90 413,253,000 361,596,375 41,325,300 10,331,325 270 1,239,759,000 1,084,789,125 123,975,900 30,993,975 630 2,892,771,000 2,531,174,625 289,277,100 72,319,275 630 2,892,771,000 2,531,174,625 289,277,100 72,319,275 51,656,625 154,969,875 361,596,375 361,596,375 8. Tax rate is 30%. Problem Analysis Recommendation Implementation Conclusion
Finance: New franchisee project 1. ROI of 3% in a 4-year period 2. Payback period of 3.92 years 3. Positive outlook beyond the 4-year period 4. Bring profitability of 14% to the group which was currently at loss at 10% Item (In US$) Revenue Operating costs (80% of revenue) Operating income Tax (30%) Net income Capital expenditure (US$1,000 per room) 2019-20 51,656,625 (41,325,300) 10,331,325 (3,099,398) 7,231,928 (18,000,000) 2020-21 154,969,875 (123,975,900) 30,993,975 (9,298,193) 21,695,783 (36,000,000) 2021-22 361,596,375 (289,277,100) 72,319,275 (21,695,783) 50,623,493 (72,000,000) 2022-23 361,596,375 (289,277,100) 72,319,275 (21,695,783) 50,623,493 - Problem Analysis Recommendation Implementation Conclusion
Finance: Other supporting programs 1. Customized booking app for the US market USD 5 million 2. Reward system USD 1 million (for the period of 2020 2023) (Booked under operating expenses)
Finance: Rebrand the Hooters Hotel 1. No data on previous acquisition so we did not include the acquisition costs in on consideration Cost item Renovation ($4,000 per room) Setting up a Vegan restaurant Promotion (Influencers/app/media) Total Amount (In US$) 2,628,000 300,000 1,200,000 4,128,000 2. Payback Period of 2.15 years after renovation and promotion Revenue forecast Daily rate Number of rooms Occupancy rates Number of dates Annual revenue Net profit (5% of revenue for an average newly renovated 4-star hotel in Las Vegas) Amount (In US$) 200 657 80% 365 38,368,800 1,918,440
What are the risks? Risks Probability of occurring Impact on OYO How to mitigate? How to avoid? Competitor platforms (ex. Airbnb) still perceived as a platform of choice Use marketing to get the brand known to the millennials Use technology and attract millennials with affordable pricing and think about partnerships for a short period of time if needed High High Public image of founder could hamper IPO & Company image Dissociate brand with image of founder by focusing on other team members as well and the advantages of technology Change the CEO and put him as Chairman Medium Medium High operational and staffing costs due to higher labor price Customize app to the US market to offer tech services Partner with a technology company to offer more services at a lower cost Medium High Problem Analysis Recommendation Implementation Conclusion
How can OYO Hotels expand successfully in the USA market? Does OYO strategy makes sense? The US needs to be focused on and should be the priority since its potential is major and funding has already been found. What challenges OYO faces and how to overcome them? There are many challenges OYO faced and that have been tackled upon which these two are the most important: - Different franchise model (unique solution that will appeal to small and medium hotels) - Unknown brand (important online marketing campaign and US team of sales rep) What are the prospects for the future? Once the US market strategy is going on, OYO can continue its expansion to other geographies (see appendix) Is this business model sustainable? Yes, the franchise model makes it possible to save on cost and target unbranded hoteliers. Does the business model translate to the American market? Yes, with communication and marketing plan, this solution offers more than the regular franchise. Should Jakayla Michel apply for a job? The attraction of OYO hotel for the US market is undeniable and should attract young talents with the plan we designed. Problem Analysis Recommendation Implementation Conclusion
What are we achieving with our plan? Partner with unbranded hotels reaching 126K new rooms in 4 years (by 2023) OYO core franchise model adapted to the USA market ROI of 3% in 4 years period Problem Analysis Recommendation Implementation Conclusion
Thank you! Questions? PRESENTED BY PRESENTED BY PRESENTED TO PRESENTED TO HEC CONSULTING GROUP HEC CONSULTING GROUP OYO HOTELS BOARD OYO HOTELS BOARD ADITYA BAID LORETTA CHAN EMILIE L.CAYER NEHA SHARMA
Appendix: Key facts of OYO Countries with presence Size (Summer 2019) VC Investment raised India, Malaysia, Nepal, China, Indonesia, the UAE, the UK and the US 1 million rooms US$1,766.5 million OYO US Initial investments in the US Size (Aug 2019) Deal structure with property owners US$300 million 50 hotels in 35 rooms Up to US$2,000 per room, a minimum guarantee of up to 100% of asset owner's revenue in exchange for 10% of gross revenues (before booking fees) and 20% additional revenue share on incremental revenue over the minimum guarantee amount Hooters Casino Hotel (657 rooms, Las Vegas) US$60-US$110 70% Latest acquisition Average daily rate Average occupancy rate Problem Analysis Recommendation Implementation Conclusion
Appendix: India Try to form an alliances with Starwoods Add loss leader hotel in Agra/Jaipur to capture brand awareness for tourists coming into India Partner with Zostel for getting foreign millennial backpackers in the brand recognition Problem Analysis Recommendation Implementation Conclusion
Appendix: UK Leverage on large Indian Population with brand knowledge of OYO Use of Indian dishes in the UK to build restaurant in the Hotels Big tourist population for a beachhead in Eastern and Southern Europe Problem Analysis Recommendation Implementation Conclusion
