When my colleague wrote this analysis about OYO’s aggressive entry into China, I was travelling in the western part of Sichuan province with family.

Over 8 days, we covered almost 1000 kilometres and staying in 6 different towns. The area is vast and mountainous, and the places we stayed were between 1900m and 4700m above sea level.

A glimpse of the scenery along this route

It is not hard to see how dependent the region (which is largely ethnic Tibetan) is on tourism – streets of each township are filled with hotels. This is towards the end of the tourist season, most of the hotels are quite empty.

One hotel owner told us that they were preparing for closure on 1st of November, only to reopen in early May when the temperature gets warmer. That’s half a year of downtime.

Ready to shut its doors in a week

Franchise

Another observation is that almost all the hotels across this region are… independent, i.e. not affiliated to any chains or franchises. I only encountered one Holiday Inn and one Ramada which represent the international chains. No Accor, no SPG, no Marriott.

Among the Chinese chains, only 7daysinn has a few sites – no Jinjiang, no Huazhu.

This hotel just joined an obscure chain (Green Tree Inn)

Obviously, this is a market underserved by all the big players.

A few local brands have tried to create their own franchise. Holy Land Image is one example, operating 4 hotels across different towns in the vast plateau, with further expansion plans. Nonetheless, this is more of a hotel owner play, rather than a big capital game.

At one Holy Land Image hotel

Acquisition of customers

How do hotel owners typically work there? They are usually entrepreneurs from other parts of China, leasing finished (but unfurnished) buildings form local Tibetans. The hotel owners then renovate the whole building, put in the necessary amenities, and open for business.

Owner of this hotel pays CNY700k (US$100k) per year to the Tibetan landlord.

Unlike the hundreds of Tibetan home-stays that litter the villages, such hotels hire employees and have running cost, and thus have greater pressure to attract more customers.

They work with OTAs, they put prominent sign boards on crossroads to attract those who have not booked (travelling in this region is not easy, you often spend much more time than required because of landslides, snow, etc.), and they work with tour operators and individual drivers (many tourists hire drivers to navigate through the region’s rough roads).

In peak season, everything is fine and each hotel is filled, with prices up. In low season, everyone tries all they can to secure the dwindling number of tourists.

OYO

While international and Chinese chains are missing, along this route I’ve come across a number of OYOs – and the large red signboard can’t be more obvious.

Glowing in the dark, 3600m above sea level

I spoke with one hotel owner, she said the reason to join OYO is very simple: “they claimed they could help us get a good brand name and more customers, and there is no cost to it.”

In comparison, it costs at least CNY500k (US$73k) to join a domestic franchise, a sum which is easily higher than many of these hotels’ annual operating profit.

“They also gave some very practical advice on how to make the hotel more attractive,” the lady said, adding that she and her friends do not have professional hotel management background, nor do the people they typically hire.

Our driver said OYO has been mushrooming this year, and typically the hotels they get are the ones which have been struggling with getting customers.

This one has signage in Tibetan

One hotel we stayed at was approached by OYO BD, but decided to wait and see. “They claim a lot of things, but I’ve not seen any friend’s hotel become successful because of joining OYO,” he said.

“It is still early days, let’s wait.”

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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Jianggan Li is the Founder & CEO of Momentum Works. Prior to founding Momentum Works, he co-founded Easy Taxi in Asia, and served as Managing Director of Foodpanda. The two years running Rocket Internet companies has given him a lifetime experience on supersonic implementation, and good camaraderie with entrepreneurs across the developing world. He holds a MBA from INSEAD (GMAT 770) and a degree in Computer Engineering from Nanyang Technological University. Unfortunately he never wrote a single line of code professionally - but in his first job he was in media, travelling extensively across Asia & Europe, speaking with Ministers & (occasionally) Prime Ministers. Apart from English and his native Mandarin, he is also fluent in French and conversational in Cantonese & Spanish. He tried to learn Latin (for three years) and Sanskrit (for six months) as well. In his (scarce) free time, he reads, travels, hikes and dives. Pyongyang, Tehran & Chisinau are among the interesting cities he has been to.