The company has recently been affected by some of its hotel partners complaining publicly, filing complaints and even writing to the regulator.
The debatable question here is: Has OYO, linked to the IPO, regained the trust of its hotel partners whom it also addresses as patrons?
Let’s take a closer look at his patron policies through his Red Herring Prospectus Project (DRHP) filed with SEBI.
With more than 157,000 storefronts worldwide, the 40 reported cases against the company or its administrators result in less than 0.02% of its storefronts. OYO sources say most of it is due to the move from a minimum guarantee to a revenue-sharing agreement. According to the DRHP, at its peak, 14.7% of hotels had a guaranteed minimum. That number is down to near zero now.
After abusing growth and expansion, the company appears to have refocused its focus on course correction on the hotel partners front.
Revenue growth is by far the most important and significant value proposition that OYO claims to offer its hotel partners worldwide. Its DRHP attempts to prove this by showing the median revenue growth of a storefront after 12 weeks of a hotel’s membership in the OYO platform.
The highest revenue increase for storefronts was in the European vacation home business at 2.4x, while India still posted a healthy 1.9x increase in revenue.
The platform has several revenue-enhancing tools, including machine learning-based dynamic pricing algorithms that use hundreds of parameters such as supply and demand, seasonality, and local trends to arrive at the optimal price in real time for a room and thus maximize the income of the partners.
Another pricing tool is the Rate Manager, which allows partners to control pricing based on their understanding of potential local demand. Currently, 45% of OYO hotels use a rate manager on a monthly basis globally.
It introduced a prepaid e-wallet to simplify the revenue collection and reconciliation process and moved from a monthly reconciliation process to now offering hotel partners daily payments to improve their working capital flow.
It now engages consistently with its partners through regular town hall meetings. All of this led to an increase in customer satisfaction score from 30.1% for the three months ended September 30, 2020 to a healthier rate of 72.3% for the three months ended March 31, 2021.
OYO now has more than 2,700 hotel partners with more than one establishment registered on its platforms. For India, this translates to 9.5% of hotel owners.
New hotels are joining the OYO platform through a self-integration tool, “OYO 360”, which automatically generates digital contracts based on property details and KYC documents provided by hotel partners.
In fiscal year 2021, nearly all of the company’s contracts with new hotel partners were signed and managed digitally, says DRHP.
However, OYO has still not been able to appease all of its doubters. Some traditional hoteliers still believe that the model of offering seasonal rates with minor discounts is the only way to keep the small hotel category viable.
Few others have yet to accept the abolition of the minimum guarantees that gave them certainty of income and are still in court to claim compensation. There are, however, signs of a thaw; According to company sources, nearly 1,300 hotel partners who faced issues in the past have joined us.
Given the dynamic IPO market, OYO’s public offering may well proceed successfully, but the continued satisfaction of its partners will have a significant impact on its growth and therefore on the performance of its shares. A point that OYO founder Ritesh Agarwal would do well to take note of.