Why many hotel owners across India are agitated with Oyo's business model

The Federation of Hotels and Restaurant Association of India has approached the Competition Commission of India (CCI) to register a complaint against the hospitality chain.
Why many hotel owners across India are agitated with Oyo's business model
Why many hotel owners across India are agitated with Oyo's business model
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Indian hotel chain Oyo has now locked horns with hotel operators, who claim that the company is hurting their businesses, rather than helping them grow. Oyo currently operates over 2,00,000 rooms in India and over 8,50,000 rooms globally. However, multiple hotel associations are now accusing Oyo of reneging on certain promises and leaching profits from the owners.

Oyo started operations in 2013 as an aggregator where it would manage a few rooms in a hotel and offer them on its platform. However, in 2016, Oyo pivoted to a 100% franchise model, which meant that while a hotel isn’t owned by Oyo, it controls the operations of the hotel, managing and running the hotel in a standardised manner. The room rates also are controlled by Oyo. However, the cost of refurbishing a hotel to match Oyo’s standards falls on the owner of the hotel. In return, Oyo promises hoteliers greater visibility, high occupancy rates and gives them a cut of the revenues earned through bookings.

“Oyo has been cheating the hotel owners by using various gimmicks and arm-twisting tactics, which has resulted in huge losses for hotel owners and has disrupted the hotel industry and market,” says Pradeep Shetty, a committee member of the Hotel and Restaurant Association of Western India (HRAWI).

Amid an aggressive expansion of its presence across the globe entering, the Federation of Hotels and Restaurant Association of India (FHRAI) has approached the Competition Commission of India (CCI) to register a complaint against the hospitality chain for allegedly levying charges without prior intimation. The matter will reportedly come up for hearing on August 6. 

Hotelier's troubles

Ashraf Ali, the president of the Budget Hotel Association of Mumbai, said that hoteliers are actually extremely dependent on the Oyo system. “They are put into a comfort zone in touching their offered minimum guarantee of business and initially, they are spoiled. Initially they were doing the business on their own, but joining with Oyo they have been spoiled and they don’t know how to do business,” he adds. 

But after forming alliances with the hotel owners, Pradeep claims that Oyo has been trying to create a monopoly, and has left with hotel owners with many problems. Hoteliers allege that Oyo has been charging high commission rates to hotels which are increased arbitrarily without their knowledge. 

“The collections of the room rates from the customers are not passed on to the respective hotels in time, and uneven and baseless charges from the pool of money is deducted which is non-transparent behaviour on the part of the aggregator. The clauses in the contracts signed with the hotels are never followed in good letter and spirit by Oyo,” Pradeep adds.

Backlash from hotel owners

This isn’t the first time that Oyo has been at loggerheads with the hotels it has onboard. In December last year, the FHRAI had threatened Oyo with action and a nationwide protest. In a letter, they wrote to the company alleging breach of contract and using coercive methods against hotels. In June, when the Kerala Hotel and Restaurant Association called for a two-day strike against Oyo over policy change, Oyo got an injunction from the Delhi High Court and threatened legal action against those who disrupted their business. 

“They send us legal notices saying you have done this amount of damage to Oyo, you have to pay a certain amount because of which small hotel owners take a back seat and don’t want to get into it. As a result of this, when we talk to other hotels, they admit that they are facing issues but when you ask them to come forward with their names, they back out because they are scared Oyo will directly target them,” Pradeep adds. 

In fact, after the Kerala Hotel and Restaurant Association (KHRA) called for a two-day strike against Oyo over policy changes, the hotel chain put out a statement that it will take legal action against any person/groups who try to cause disruption of business and inconvenience to both customers and asset owners.

“Most of the boycott claims are being made by small vested interest groups with no property franchised with or leased to Oyo Hotels. As franchisors, we continue to engage with our franchisee hotel owners on a one-to-one basis to resolve issues and in case we don’t reach a mutually acceptable solution, part ways amicably… However, some such individuals have also been threatening to cancel agreements and not accept online bookings, which will be a default of the contractual arrangements, and will lead to legal liabilities on these individuals as we cannot and will not let anyone hamper the customer experience. We will take strict legal action,” Ayush Mathur, Chief Supply Officer, India & South Asia at Oyo Hotels and Homes said at the time.

"The biggest industry concern is that after securing discounted rates from a hotel, the Online Travel Aggregator further discount it on their online platforms without our consent. This damages our reputation and distorts the market scenario," FHRAI Vice President and HRAWI President GS Kohli then said. 

Delay in payments

Ashraf from Budget Hotel Association tells TNM that many of their members are in trouble because of a delay in payments from Oyo's side, and is putting hotel owners in trouble because the hotels are on lease.

“Payments haven’t been released for four to five months, and all kinds of hidden commissions and charges comes to more than 40-45%. The agreement is for 10-13% and all other hidden charges and other things comes to an additional 30-35%,” Ashraf said.

Pradeep echoed this sentiment as well. “They levy small charges and then say you have opted for them and when we reach out to their teams, they don't respond. When payment day comes, their statements don’t match with ours and when we ask them to reconsider, they purposely give negative reviews so that they can cut money,” he said.

Ashraf said that a hotel he owns in Hyderabad did have a tie-up with Oyo, and eight months ago, he decided to terminate the contract at a time when Rs 32 lakh in payments was still pending.

“It was a 3-star hotel that Oyo was selling at the rate of Rs 800 and soon, I began to lose my corporate clients. The standard of the hotel wasn’t kept. The property is the hotelier, the standard to be kept is by the hotelier, but Oyo isn’t bothered about auditing,” he added. 

What Oyo says

Both the FHRAI and Oyo declined to comment on the complaint as the matter is pending with the CCI.

An Oyo spokesperson told TNM that the allegations regarding delayed payments were anecdotal. Concerning the matter pertaining to the matter of hotel standards not being maintained by Oyo, the company denied the allegations.

“We categorically deny allegations regarding hotel standards not being maintained by Oyo. We have undertaken a series of measures to enable building owner success and have already invested over thousands of crores in capital expenditure, appointed hundreds of GMs to oversee operations and customer experience. We focus heavily on service quality and invest in it, both in the form of technology to help run day to day operations through multiple apps like Keep, Property Manager etc and talent,” an Oyo spokesperson told TNM.

On the contrary, Oyo claims that it has launched several initiatives for its asset-owner partners in the country to grow their businesses. One of them was the Open Partner Engagement Network (OPEN), an initiative for a year launched in April 2019, to help its asset-owner partners in the country in growing their businesses. It announced transparent payment protocols whereby asset owners would receive 18% interest (from Oyo) on delayed payments and resolution for exceptions will be done before the due date.

It said in a statement on Monday that as part of its OPEN initiative, about 1,000 building owners in its chain were penalised for not adhering to required quality norms.

With inputs from Shilpa S Ranipeta

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