Ritesh Agarwal, the Amazingly Ambitious Hotelier

(Bloomberg Businessweek) -- When he was 19, Agarwal spent three months traveling around India. In places such as Darjeeling, Delhi, Goa, Kerala, and Rajasthan, he lived a budget traveler’s nightmare: filthy hotels with dirty sheets, roaches, lizards, bedbugs, peeling wall paint, doors that didn’t close properly, foam blocks that passed as mattresses, and buckets to collect water for bathing. “I learned something truly fascinating in my journeys,” he says from OYO’s headquarters outside Delhi. His takeaway: There was a huge business opportunity in standardizing and improving service in hotels with 150 rooms or fewer that the major chains ignored. The first OYO opened in Gurgaon in 2013 with high-thread-count sheets, thick mattresses, flatscreen TVs, and hot water. Occupancy rates went from 18% to 90% in the first month, Agarwal says..Today, he’s 26 years old, and his company is valued at $10 billion—thanks in part to a roughly $1.6 billion investment over the past two years from SoftBank Group Corp. Like most hotel chains, OYO doesn’t own its properties. Instead it provides capital and training to hotel owners who rebrand to OYO’s specs, along with proprietary data-mining technology that helps properties maximize revenue. OYO takes a portion of that revenue, Agarwal says, with gross margins averaging 20%. There are 44,000 OYO hotels with 1.2 million rooms on four continents. In the U.S., an average night’s stay runs $70 to $80. (OYO stands for “On Your Own,” though the company uses only the acronym now.) Edited excerpts from his conversation with Bloomberg’s Saritha Rai:.How did you grow so quickly?.Less than a year ago, we were mainly in India and starting to make a mark in China. We were the fourth- or fifth-largest hotel operator in the world. Almost every day we add 70 to 80 hotels. We will open close to 100,000 rooms in the next 30 days. At the end of June, we had 50 properties in 35 U.S. cities. Now we are close to 200 properties..We were building the business in India, but we were creating a product that we could transport. We redo interiors much faster and more intelligently than other companies. We operate more efficiently through measures like a housekeeping app that incentivizes cleaning a room quickly and getting a high customer rating. We change our prices worldwide about 60 million times daily, maximizing revenue per room based on demand. Three years back we were growing at 60%. This year it will be 300% or more. In Tier 2, 3, and 4 cities in China, you can’t miss the OYO hotel sign. When you drive around Jakarta or London—and, increasingly, Dallas, Houston, or Las Vegas—it’s hard to miss the sign..What’s the business model?.Everything is optimized for occupancy and repeat customers. Generally, occupancy goes from 30% to 40% before OYO to 60% to 80% after. We have a 99% owner-retention rate. In India we spend roughly $500 to renovate a room. In China’s smaller cities, it’s $500; in the bigger cities, it’s $750. In the U.S., it’s $1,000. We recoup our money in approximately six months on average, globally..Before we design interiors, we predict what kind of design, for the lowest capital expenditure, will give us the best returns. For instance, we found that portraits of Marilyn Monroe increased revPAR [revenue per available room] of a property by 10% to 11% on average. Consumers classify hotels like this as “boutique.” It began when one of our hotels in Wichita Falls, Texas, saw revPAR improve by 25% after we put Marilyn Monroe portraits on the walls. Then we started copy-pasting this..In India over 50% of our hotels are full service—that means you can order room service. Imagine doing that at a price point of $25 per night. Outside India we don’t have full-service hotels for that price. When a guest checks in to a full-service hotel, the lobby staff knows that the guest ordered pizza to the room on a previous visit and will proactively ask if the guest wants a pizza. If a receptionist sells additional services, he earns an incentive. Our OYO training institutes groom employees. We’ve created 300,000 jobs in housekeeping, front desk, maintenance, and so on..How did you become an entrepreneur?.I grew up in Rayagada in Orissa state in eastern India. Few people have even heard of it. Roughly 70% of the people there live below the poverty line. When I was 13, I started reselling SIM cards because big companies didn’t want to sell in that small town. My father ran a grocery store. We were four siblings. I’m the youngest. The older three are engineers, and two have MBAs. I’m a college dropout. My parents thought they had three respectable children, and I was the black sheep. They rued, “Isko ghas katnewala kam milega” [“He will get a grass cutter’s job”]..You travel around India and to China and the U.S. each month. Does that leave time for a personal life?.The only constant in my life besides OYO is Lisa, my dog. She’s a Lhasa apso. The only reason I shop is to buy accessories for Lisa..My parents still don’t understand what I do. They can spot two OYO hotels from the balcony of their house, so they don’t worry so much. They now think I have a reasonable job because they send me pocket money, and I don’t ask for more..To contact the editor responsible for this story: Bret Begun at bbegun@bloomberg.net, Max Chafkin.©2019 Bloomberg L.P.

Ritesh Agarwal, the Amazingly Ambitious Hotelier

Oyo became world’s No. 2 hotel operator by room count, and it’s poised to overtake No. 1 Marriott International early next year.

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