Amongst all the graphs in the report, this one is catching:
If these numbers are to be trusted, OYO’s Indian operations seem to make sense. However, China and Rest of World are incurring much heavier losses, on smaller revenue contributions.
The CFO described the situation with a positive note:
Since China and other international markets were in development and investment mode, they contributed to USD 252 million (75%) of the USD 335 million losses for FY2019, while these markets constituted only 36.5% of the global revenues. We will continue to make growth investments in multiple new markets in the next fiscal year as well.
But it does not make sense for OYO to make ‘growth investments’ – instead, it should shut China and Rest of World.
We wrote in 2018 that OYO’s entry in China was very challenging. Facing a more mature market and competitors from left right and centre, OYO’s only way to succeed is strong execution.
Alas, its execution in China was … aggressive but rudimentary. Yes the number of rooms went up (and overtook India at some point of time), but that number is not sustainable. While you can take complaints from hotel owners as noise, but when they do not renew their contracts, OYO will face a problem.
In 2019, we wrote that to localise successfully in China, OYO’s young global team still had much to learn.
Its expensive FMCG-executive-filled C-suite in China seem to have not been empowered to run the business on their own. This week, COO Sam Shih, the only C-suite member with hotel chain experience (used to be Chairman of Accor in China), announced his departure.
In a few months, OYO will also face the renewal of contracts with major OTAs in China for listing its hotels. This will be costly.
The coronavirus outbreak, which hit travel industry badly in China, certainly did not help.
In one word, it has lost the momentum in China. Trying to (re)build a top notch team there won’t be easy – to put things in perspective, Uber never found a China CEO.
Do not lose India
We believed that OYO could beat its competitors in other markets, such as Indonesia. The reason was simple – it was quite a standard business to run, and OYO had much more cash than its competitors.
Alas, the traction they are getting is at best limited. Regional or local competitors, such as Reddoorz, are already emboldened alongside their investors. They are no longer afraid of OYO, creating another headache for the ambitious Indian company.
OYO’s business model makes sense in India – and while it went on a global rampage, competitors are emerging in its home market too. Already a few friends are telling us they feel Fabhotels are much better than OYO.
It makes much more sense for OYO to stop the distraction by shutting China and the rest of world markets, and instead focus on getting and securing that 30% take rate in India.