What does OYO mean for the Chinese hotel industry?
Source: China Travel News / China National Radio / 09 April 2019
“First they deride you, then they copy you.” So the old saying goes. And this couldn’t be any truer for innovative ideas and operators breaking into the well-established Chinese hotel industry. Anything new is at first met with scepticism, bordering on defiance. The status quo doesn’t take too kindly to change. And with the research pointing at steady growth levels within the Chinese hotel industry over the past few years, hotel giants in China don’t feel compelled to change much about the product they offer guests. That is until a new competitor comes along.
Who is OYO and what do they spell for the Chinese hotel industry?
OYO Rooms is fast becoming one of the biggest hotel networks in China. Offering over 180,000 rooms in more than 4,000 hotels China-wide, the OYO business model is proving quite the competition for the big hotel chains. How it works is that OYO books rooms in advance from budget-friendly hotels in around 285 Chinese cities, including Hangzhou, Nanjing, Guangzhou, Chengdu, and Shenzhen among others. And because they are booking out rooms for the entire year, they receive a deep discount. Which they can then pass on to customers, after keeping a small portion for themselves, of course.
Let’s look at an example to illustrate how the OYO business model is disrupting the Chinese hotel industry. Suppose a hotel room per night costs ¥$250. For booking it out for an entire year, OYO might get a discount of say 50%. Thus, the cost to OYO for that room is now ¥$125. The hotel room aggregator company can now pass those savings onto their customers. Even if they charged the guest ¥$200, everyone is happy. The hotel has sold its room/s for the foreseeable future, the customer gets a ¥$50 discount and OYO Rooms walks away with a ¥$75 profit.
How is OYO impacting the Chinese hotel industry?
To begin with, the entry of OYO onto the scene was not largely welcomed. Seen as a ‘barbarian’ at the gates of the Middle Kingdom, the established hotel giants closed ranks and tried to ignore the threat it posed. However, their stance could not last long. Realising it was a matter of adapting or perishing, China’s bigger hotels are now taking a leaf out of the innovative company’s playbook.
With a clearer direction to make online booking easier and offer higher quality rooms for the budget-conscious traveller, the Chinese hotel industry is shaping up thanks to OYO. And it looks as though the more established operators are now interested in copying OYO, rather than directly competing with it. In 2017, OYO the Huaza Group signed a five-year MoU with OYO to build a global hospitality business together. Not only that, the leading hotel operator and franchisor in China also pumped a cool $10 million into OYO’s coffers to become a minority shareholder.
This is proof positive that the threat OYO posed to the Chinese hotel industry is now over. The established giants have taken note of its innovative business model and budget-friendly brand and decided to ride their coattails, rather than work in opposition.