Feature

Who’s staying?

Budget hotel start-ups are finally coming of age, after a period of painful learning and self-discovery

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It has followed the script of most boom-bust stories: the start-up frenzy, the FoMO, euphoria, the implosion of many and then the survival of the fittest. In 2015, the budget hotel space was viewed as one of the most exciting segments. OYO Rooms had already started becoming a neighbourhood name. Ritesh Agarwal, just 21 years old then — Thiel Fellow and a college dropout — had become a media darling. And with the kind of growth OYO was seeing, it was only natural for over a dozen start-ups to jump into the frenzy that was hotel aggregation, between 2014-2016. This included names such as, RoomsTonite, ZO Rooms and WudStay. The $10 billion budget hotels segment was huge and lucrative, but there was a catch for the aggregators — monetisation wasn’t easy. 

Fault lines soon started becoming obvious. For the highly fragmented budget hotel segment in India, quality and customer experience weren’t very familiar terms. The aggregator model didn’t give the start-ups enough control over the hotel properties to ensure a consistent quality experience for customers. Unit economics went crazy for most players. This combined with the fund crunch in 2016 made sure that many aggregators went belly up, one after the other. The shutdowns in the hospitality space in 2017 included some prominent names such as, Stayzilla which in fact went through some dramatic events including the arrest of its founder Yogendra Vasupal. The company that was in business for over 12 years had raised about $33 million from the likes of Matrix Partners and Nexus Venture Partners. In an online post in 2017, Vasupal announced the shutdown, citing lack of network effect, inability to expand quickly, high costs and low revenue. RoomsTonite and HotelsAroundYou, too, wound up their operations after running into a cash crunch and inability to raise fresh funding. Others just vanished silently leaving the ground wide open for just a handful of players.

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Booking a budget hotel had seldom been a pleasant experience for the Indian traveller. The brand options that were available such as, Ginger, Ibis, LemonTree etc. were not pure-play budget hotels given that their price-points were way above what a budget traveller could afford. The next option for the traveller was to book with any of the local hotels and compromise on the quality of stay.

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