India’s Oyo Hotels and Homes shot out of nowhere to become one of the world’s largest hotel chains with a simple promise of “hassle-free” online booking, transparent pricing and cheerful lodging.
But as the Softbank-backed startup pushes toward profitability, an increasing number of Indian hotel operators who have partnered with it are complaining about being blindsided by fee increases.
The backlash against Oyo - while limited to a small share of the more than 10,000 hotel owners in India who work with it - comes at a crucial time for an emerging-market unicorn valued at $10 billion and its major investor.
Softbank, which has invested nearly $1 billion in Oyo, through its Vision Fund, is struggling to raise funding for a second investment fund in the wake of the failed offering of office-rental company WeWork and amid questions about the path to profitability of other marquee investments like Uber. Oyo has not yet turned a profit.
In the background of the discontent is the disruption Oyo has brought to India’s lodging market – often to the delight of India’s middle-class travelers and to the dismay of hotel owners who have seen room rates driven down at a time when economic growth has slowed.
Oyo charges hotels a roughly 20 per cent franchise fee on room revenues when hotels join its network, but some Indian hotel operators say the startup often ends up taking half or more of revenues through fees that were not initially disclosed.
A group representing hotel operators in Bengaluru called for a criminal probe into Oyo last month, saying the company was withholding money because of unfair fee increases.
Two hoteliers in the southern state of Karnataka filed separate police complaints last month accusing Oyo of deceitfully increasing commissions, and accusing Oyo’s 25-year-old founder and CEO Ritesh Agarwal of fraud.
Agarwal successfully appealed to the Karnataka High Court for a stay order on one case in Bengaluru, the court website shows, and a police official said the order barred police from investigating.
In the other complaint, in the town of Chikkamagaluru, police are investigating, an official there said.
Oyo has denied the allegations and said Agarwal declined comment on the legal complaint. The company said it operates with a high level of “integrity, transparency and commitment” with its partners.
Agarwal said hotel operators who have raised complaints represent a tiny fraction of Oyo’s network and were seeking to drive prices higher at the expense of consumers.
“On an annual basis, Oyo is able to retain 99 per cent of its asset owners. If, for instance, people were unhappy, our retention rate would have been lower,” he told Reuters.
Softbank, which owns a roughly 45 per cent stake in Oyo, declined to comment.
‘PLATFORM FEE’ AND ‘VISIBILITY BOOST’
Oyo says it is in constant contact with its hotel partners. “We have always disclosed any changes applicable to contracts with asset owners,” Oyo said in a statement.
For their part, owners and managers say Oyo has introduced fees - including a “platform fee” and a fee for a “visibility boost” - which they only discovered in monthly statements.
Reuters interviews with 22 hotel owners and managers who run hotels under the Oyo brand in 10 Indian cities suggest the discontent has grown since late last year.
Several hotel groups have organized protests. Amitabh Mohapatra, head of one such group in northern India, says over 300 hotels have quit Oyo’s India network this year, while Kunal Rajpara, who heads another group in western India, said a few dozen hoteliers from Ahmedabad ditched Oyo last month.