Last updated on February 20th, 2018 at 06:53 am
While everybody is singing praises of these budget aggregators, very few are looking at the dark side.
The travel battleground is set. In the midst of hotels, accommodation providers, online travel agents, offline travel agents and service providers, trying to grab a slice of the travel & tourism market, a new player has joined in, the budget accommodation aggregators.
Players like Oyo, Zo Rooms and Fab Hotels among others are stirring up the accommodation industry with their unique business model. They have been taking things one step further than the online travel agents, and every hotel from budget to premium, is asking the same question – Should we join hands with them?
Despite their increasing popularity, not every hotel is willing to jump onto the bandwagon and reasonably so. Why? Let’s try and answer that and identify the good, the bad and the ugly of budget accommodation aggregators.
- Easy Money
Who doesn’t like quick and easy money? This is perhaps the most alluring part of the entire partnership. Most budget aggregators purchase large chunks of room inventory and pay upfront. Whether your rooms will receive guests becomes inconsequential as the money is already in your pocket and your room sales are in the green. But entirely inconsequential it is not, and we will take up the down side to it in ‘The Bad’.
- Promise of Improved Yield
As Patu Keswani, chairman and managing director, Lemon Tree Hotels, puts it concisely “Effectively, they will bring more supply from the disorganized to the organized part of the market and therefore competitively target the same customer that the organized economy and midscale chains have been targeting.”
This in fact should help bring more people to the online medium for booking rooms and a realization that staying at hotels is not such an out-of-reach proposition now. Which in turn should help with increased hotel room demand and ultimately improve yield. But this is a long-term benefit with too many variables involved and even then may affect every hotel in a different way.
- Organizing the Budget Segment Hotels in India
There is an inherent benefit to the entire accommodation industry if this model is executed properly over the long term. Even now the sudden arrival of budget aggregators is giving the branded budget and mid-size segment a run for their money. However, there is a lot yet to be desired. Standardization requires more than just selling under a single brand name and more importantly require a look into the processes and sub-processes of a hotel beyond free Wi-fi, linen and a bag of amenities. The platforms are still and young and even the current efforts are commendable, but soon enough there should be talks of regulations, compliances and protocols. That is when the true organizing of the budget accommodation offerings should take place. As of now, the aggregators are the strongest contenders to spearhead this change in the budget hotel sector.
- Brand Dilution
While on paper the aggregators allow hotelier to show higher yield, it is not the hotels sales in the truest sense. What was actually sold to the consumer was a completely different brand and hence a completely different experience. Not one those guests acquired through those channels is going to say what a wonderful stay they had at ‘Hotel ABC’. It is going to be a great experience at ‘XYZ Rooms’ for them. This way despite the experience being at your hotel, the word-of-mouth favors the budget aggregators.
- Increased Cancellations
As the budget aggregators are being perceived by hoteliers as steady revenue generators, they are agreeing to more risky propositions being placed by the aggregators. In the last 2 months, the ‘Pay at Hotel’ option has been introduced to users and the budget aggregators are moving away from pre-purchased inventory model. Without advance payments, there has been an increase in last minute cancellations and no shows. This almost always results in a lost room night, since room inventory distribution on alternate sales channels for room nights so close to check in dates becomes more difficult.
- Your real guests might start hating you
While you have positioned your hotel for a more sophisticated demographic with your pricing, the lower rates often attracts a rowdier crowd. There are ample instances of guests, coming in from the budget aggregators, creating nuisance at hotels, being involved in sex rackets and running off without settling the complete bill. This in turn lowers the brand value in the minds of your direct and repeat customers. A gang of hooligans arriving at a serene resort is more than capable of destroying the experience of all the other guests at the resort. Such a crowd is also capable of affecting your staff’s morale in a negative way, making them lose their motivation to deliver quality service.
- Losing Supplementary Revenues
As mentioned above, selling to the budget accommodation aggregators is easy money. If you are thinking that it’s a good deal, even if your rooms are not actually sold to an end user, think again. If you sell the rooms, but no guests are coming then you could very well be losing revenues from ancillary hotel services such as FnB and Spa. For a lot of hotels these supplementary revenues can from a sizeable chunk of the total revenue stream. Moreover, with no guests you are losing out opportunities to bring your hotel in front of guests and turn them into direct customers, even with the co-branding deal in place. So do remember to factor in these lost revenues when planning to allot inventory to the budget hotel aggregators.
- The Smoke and Mirror Strategy
A lot of people are failing to understand that the budget hotel aggregator’s current ability to push out rooms at such a lucrative price point is fuelled by burning investor money, thereby creating an illusion of value addition. The truth seems to be far from it. A high value business is one that provides a competent solution, a solution that creates a marketplace for a large unfulfilled demand with a large unfulfilled supply. In case of the travel and accommodation industry in India, this has already been achieved by OTAs such as Make My Trip, Goibibo and Yatra since ages by using technology to connect hoteliers, the previously unfulfilled supply, with guests, the demand. And for that matter have had budget hotels listed since long.
The budget aggregator model should be discovering and curating room inventory, but by selecting properties that are already listed on OTAs, and selling them at a major discount is simply creating another OTA with a higher capacity to sustain losses.
The problem since long lay in standardizing the guest experience with budget hotels. Guests could never be sure what kind of experience awaited them with such budget hotels. The budget aggregators, by presenting rooms under a unified brand and promising a standard set of services at a massively discounted price have quickly drawn users to their brand, but the guest experience is still broken. And the undiscovered inventory is still undiscovered.
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- What if they decide to ditch you?
Perhaps the most drastic outcome of this relationship is losing the good graces of the budget aggregators, while you go ahead and burn the bridges with your other vendors. You have pushed away your online travel agencies, which means losing out your search ranks there and rebuilding reputation. Offline travel agencies might prove to be tougher nut to crack. And your direct sales channels would need to be reorganized with a new strategy. That leaves you nowhere, from a sales perspective, all of a sudden and you would be repeating the same exercise of setting up your sales channels all over again.
Overzealous startup evaluations have failed in the past and this is a very possible outcome, as the funding money, which currently supports the reckless expenditure for the sake of gathering market share, dries up and survival depends on working on a leaner business model by shaking off non-profitable relationships.
- And what do they leave behind once they ditch you?
The assertion of organizing the Mid and budget sector falls short once again considering there is very little that the hotel accommodation providers are receiving in terms of knowledge and management expertise. While many aggregators claim to provide training to hoteliers to improve their management and operational skills, a substantial number of guest experiences seem to be disagreeing. Moreover, most aggregator’s focus on technology is aimed at the guest touchpoints, rather than at hoteliers. Considering how important technology is today in streamlining and organizing industries, there is very little being developed to support the hoteliers. Most likely you are going to be left with just a Wifi router if the relationship is broken.
- It could be bad even if budget aggregators turn out to be the ‘Next Big Thing’
Provided the budget hotel aggregators are able to catch up with the current shortcomings in the model before their funding dries up and become a critical part of the online hotel room distribution ecosystem, then one thing you can be certain of is that they would be commanding loyalty from a massive guest base, which should in essence allow them to negotiate lower rates from the hotels.
Hotels that manage to keep their costs down and maintain a balanced room distribution across sales channels, will be the ones to avoid the arm-twisting tactics and flourish.
For most part the market budget aggregators have promises of a brighter future for hotels, that only time will tell if they can make good on. The business model is still in its nascent stages and should witness some interesting twists and turns until it becomes a mature, unavoidable part of the ecosystem.
Our take is for hoteliers to sit tight and not put all their eggs in one basket. Being exclusively dependent on a single sales channel, might put hoteliers in a precarious and unforgiving situation in the future. But we are in no way suggesting that you do not get on board this train and not build relations with a vendor.
The key is to play smart and treat it just as any other sales channels. More importantly, treat it as a new sales channel where one can potentially unload their unsold room inventory to improve yield. Hoteliers need to identify, based on historical data, of how their various sales channels are performing, how well they will scale up for future dates and then forecast your room occupancy. After that sell out only the room inventory which you figure, might go unsold. While forecasting involves a lot of nuances in itself, a little bit of churning through the past data, factoring in future market conditions and a little common sense will give you a better number on room inventory to allot budget aggregators than random guesswork.
In the mean-time hoteliers should continue to focus on delivering better guest experiences to retain repeat business and developing direct revenue generation strategies to move towards self-reliance. This should be supplemented by improving the hotel’s sales processes and developing competencies aided by new technologies, such as DJUBO. And it may seem we are simply tooting our own horn, but the fact of the matter is that this is precisely how DJUBO has been developed – a tool to move hoteliers towards self-reliance in managing multiple sales channels more effectively.
As of now the budget aggregators are no more than OTAs that are offering massive discounts by burning through venture funds. The only thing that they are proving is that there is a huge market for the budget, Rs.999 to Rs.1499, segment. But that has been long known. Big luxury chains have been trying to inch closer to capturing that market since long with their budget hotel offerings. But they too have been facing the challenge of capturing that price point while delivering a standard level of service and compliance. The challenge the budget hotel aggregators have to overcome is developing a self-sustaining and standardized offering that can function at this price point without burning through investor funds, and still be profitable to all stakeholders involved.
So, let’s hang in there and watch where this new business model leads the entire travel and accommodation industry.