Reported By:
| Edited By: Ashish K Tiwari |Source: DNA |Updated: Sep 25, 2018, 05:55 AM IST
Budget hotel start-up Treebo Hotels has a portfolio of 400 hotels and is taking the franchise route, a strategy not many have been able to crack successfully in the Indian market in all these years. The company co-founder Sidharth Gupta, in conversation with Ashish K Tiwari, talks about things that really clicked with the hotel chain and plans.
Franchising is a difficult model more so when you are trying to do it on the budget segment, which is already a fragmented space. The space we were attacking was very large wherein the average size of a franchisee unit was about 24 rooms. It was inherently challenging and I think the only reason we even thought of taking that path is that we saw technology playing a big role.
There are a few primary things that have helped us to follow this model. One is indeed the technology that has allowed us to oversee the franchisee partners. We were able to initiate corrective actions whenever there were any gaps in a much more efficient and faster manner. We invested lots of resources and time in developing what we call as the quality management system (QMS). Every hotel that we work with, every frenchisee is kind of virtually replicated in this system and it is done using every single customer touch points (around 5,000 in any hotel) as the building blocks.
There is a floating general manager concept in our business who takes care of five to six properties in a close vicinity. His/ her job is to go and audit the properties every alternate day or twice a week if not more frequently. S/he uses a mobile app built on the QMS. One directly feeds information into this, thereby conducting smart audits. Similarly, there are a few other sources/ ways of gathering feedback viz. mystery audits, reviews, internet of things, etc., to keep a close check on the overall quality of customer experience delivery.
Secondly, we have done some process innovations. We are fairly committed and deeply involved in actual on the ground operations of the hotels in our network. This is where the floating GM concept plays a crucial role in creating benchmark customer experiences. The third and an important twist on our business model is that we are actually not a pure play franchise model. We take full responsibility for distribution and that is, in fact, the biggest value propositions we bring to the hotels. So in a strict manner of speaking the hotels in our network are not purely operating on a franchise-based model. We have a combination of distribution and franchise model wherein we put our money, give a commitment on how much sales we can generate for them and that does become the important hook for them.
Churn is typically 10% to 15%. Hotel owners believe that they will be able to follow our quality standards and they get tempted by the value creation possibility they are not able to keep up with. So they either voluntarily pull out or we forcibly ask them to leave. This is because these are very early days in the life of this industry. Therefore, like any other industry, there is a lot of shift in behaviour. I do expect to see much more stability going forward.
We've raised about $57 million in capital. Investors have about a 60% odd of the company. In the last round that happened in August 2017, we raised about $33 million. There isn't a lot of burn in the business per se so a large majority of last funding is still in the bank.
Not yet. We are yet to publish the numbers for the last fiscal. We will be doing it soon. We are already positive at a unit level but there are still overheads in the system which will get justified by further scale. I expect profitability to happen in the next two to three years.
It is an unfortunate thing that we had to take such a dispassionate call. As a young company, you make a lot of investments early on your journey. It's only fair when these investments become self-reliant and you are able to release some of your cost in order to improve the profitability situation. It is better to do that. But we did all possible effort from our side in terms of financial support for them to find their next opportunity. Young start-ups like us are unprofitable and if you do a few things to help and improve the profitability situation then it is good for the business.
We are on track to double the size in the next 12-15 months. By end of next year, we are targeting to go from 400 to 800 properties. And that would indeed entail a monthly addition rate of about 30 to 40 properties. We've hit the peak addition rate much more, almost 100 hotels in a month and our systems have already been tested for that.
