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What does OYO mean for the Chinese hotel industry?

09/04/2019| 6:39:38 PM|

The standalone hotels that are hidden below the iceberg present a trillion-RMB market experiencing consumption upgrade.

The advent of new things will always cause panic, and after the panic it is questioning. But when it proves successful, it will also usher in more positive feedback. As a “dark horse” that ran into the Chinese hotel industry, OYO Jiudian also experienced the process from being questioned to being recognized.

Recently, at important industry forums such as the TravelDaily Conference, OYO has been repeatedly mentioned as a hot topic. Generally speaking, the hotel industry leaders have maintained a rational attitude towards OYO and partially recognize it.

The soft brands represented by OYO are undoubtedly the rare investment trend of the hotel industry in recent years. Just as Jian Sun, the general manager of the BTG Homeinns, said that VCs have never paid so much attention to the hotel industry. For the Chinese hotel industry, what does OYO Jiudian mean? How do industry experts evaluate OYO Jiudian?

OYO disrupts China's hotel industry

“Also in 2017, OYO entered the Chinese market and opened its first hotel in Shenzhen. But many industry insiders cannot imagine that OYO can set off such a big wave in the Chinese hotel and OTA market in the next two years.” In 2017, OYO Jiudian officially debuted in China. As Chao Li, CEO of TravelDaily, said, OYO Jiudian successfully entered the field that other hotel brands have never entered – providing cost-effective accommodation service in the price range of 100-200 yuan. On average, they get present in a new city every 1.4 days, and sign a new hotel every 3 hours. "OYO speed" refreshed our understanding of the industry.

The initial response in the industry and market for the subversion is to question: "A barbarian has broken into Chinese hotel industry"; "Some brands will collapse and end up like chicken feathers scattered on the ground." But under these doubts and noises, many traditional hotel chain brands quickly jogged into this new track, such as Huazhu, Plateno, BTG Homeinns, Lvyue, etc. All of them joined the battle, and the trillion-RMB standalone hotel inventory market has been completely activated. 

Accompanying all this is the gradual recognition and validation of OYO’s business model. The seemingly tense relationship between OYO and OTA also begins to cool off and shoots directly in the win-win direction. OYO established strategic cooperation with Ctrip and Meituan.

During the Global Travel Summit, Guo Qing, MT’s VP said in response to Jing Wang, TravelDaily COO, “we are refreshing our perception about OYO and the existing hotels market day by day. In the beginning, we did not see through this field’s value. But now we did: on one hand, it helps move the entire hotel industry online; on the other, it attracts more attention from the capital world to the hotel industry.

It is safe to say that OYO’s disruption of the Chinese hospitality industry has won dual recognition of the market and the industry. Just as Chief Analyst at JPMorgan commented about OYO Jiudian in its June special report, OYO Jiudian is highly disruptive and aggressive for the Chinese hospitality industry. “As China’s economic growth slows down, Chinese hotel brands are facing unprecedented disruption. OYO slides into the standalone hotel market and becomes China’s second-largest hotel group within a short period of time. With its recent handshaking with Ctrip and Meituan, it has certainly posed a threat to traditional hotel brands.

OYO reshapes the development direction of the Chinese hospitality industry

Another comment from Guo Qing is even more complimentary for OYO. “the standalone hotels that take the biggest chunk of the industry have multiple demands in marketing, IT, operations, talents, brand, and standards while OTAs like MT and Ctrip only fulfill the marketing demand in the past 2 decades.” What’s left unsaid is that OYO is doing what OTAs failed to do by using the combination soft brand, light franchise and heavy operations to empower standalone hotels all the above-mentioned aspects.

If OYO Jiudian 1.0 is only using an innovative model to disrupt the outlook of development for Chinese hospitality industry, then OYO Jiudian 2.0 is reshaping the entire industry.

On the technology side, it released manpower and integrates industrial data with digitalization. During the ground operations, it gathers all the operating data and experience in the central reservation system and hands everything to big data platform to prevent any mistakes incurred by human decision-making while enhancing operational efficiency.

More important, OYO Jiudian is the only hotel chain brand that is capable to offer all-round revenue assurance to partnered owners. With revenue assurance, it forms a close-knit community of common interests with owners and control pricing of rooms. Exploiting big date to control the fluctuations of market prices and thus generating real-time prices, it assures hotels of maximum revenue, which is why OYO has the confidence to compensate and guarantee revenue to owners.

The practice of revenue assurance wins positive comment from Xia Qingning, CEO of H Hotel, OYO’s competitor. OYO leads a new trend and its pros outweigh cons. Moreover, Chinese players have something to learn from OYO, its VAM revenue model for instance, “this is effective. We understand that OYO wins 65% of the VAM. Why? Because of dynamic pricing, which was a blind spot for standalone hotels.”

Qian Qiongwei, Co-founder of PEELI Ventures, thinks that OYO Jiudian 2.0 is an impressive innovation of the franchise model in the economy hotel segment. Under 2.0 model, OYO takes full control of pricing strategy and enables auto-pricing based on supply-and-demand with the help of its manual-intelligent dynamic pricing system. OYO’s full-stack model, paired with big data-driven dynamic pricing and revenue management tactics, will greatly improve the net cash flow per time unit for assets and realize the maximization of the industry chain’s value.

The standalone hotels that are hidden below the iceberg present a trillion-RMB market experiencing consumption upgrade. OYO’s potential is far from fully-tapped and the change for Chinese hospitality industry has just begun. We can imagine that when the trillion-RMB standalone hotel market gets fully galvanized, the impact for the hospitality industry, tourism industry, and even the entire service industry at large will be beyond expectation. And it all boils down to the role OYO Jiudian plays in prying open the window.   

TAGS: OYO | Traveldaily Conference
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