Budget hotel aggregation is a hot property in India. It all started with Oyo — it rose to popularity, people went crazy about it, but soon realised it isn’t exactly the way being portrayed. Investors however are still bullish of this segment, and are now starting to put money in alternate (or better?) business models in the domain.
After Stayzilla’s $13 million round last month, its FabHotels — a rather newer entrant — which has secured $8 million in a series A. Accel Partners and RB Investments led the investment round with participation from Qualcomm Ventures and Mohandas Pai’s Aarin Capital.
The company will use the funds for brand building and expansion activities. It was founded in 2014 by former executives of Rocket Internet. Fabhotels had raised $2.25 million in seed funding from Accel Partners and Qualcomm Ventures in July 2015.
Unlike other aggregators, FabHotels claims to provide a holistic hospitality experience rather than just being an aggregator of rooms. However, the basic approach is same — partnering with smaller hotels in India and standardizing the services to provide a quality experience to budget travellers.
Franchise model of FabHotels
FabHotels denies having any similarity with the business model of Oyo. Instead, the company is taking inspiration from billion-dollar budget hotel chains in China like Homeinns and China Lodging.
It operates by striking proper partnerships with hotels for the franchise. This allows it to have complete control over distribution rights of the entire inventory in addition to getting involved with the hotel operations.
What we are building is a pure tech-driven franchise model for budget hotels. Our model is not about taking partial inventory in a hotel and branding that as FabHotels.
says Vaibhav Aggarwal, Founder of FabHotels.
FabHotels charges a franchise fee of around 20% of the monthly revenue of hotels. It offers rooms at an average rate of 1,800-2,000 per night.
According to Aggarwal, complete franchise model allows them to have better control over customer satisfaction and RevPAR (revenue per available room). Each of these parameters cater to demands of both hotels and customers. Hotels get a better RevPAR and customers experience quality service as a result of complete control of Fabhotels over operations.
Explaining the same, Aggarwal says,
In the absence of effective control over the operations of a property, it is difficult to deliver on the promise of customer satisfaction. Even on the RevPAR side, you do not command much respect of the hotelier because you are essentially selling rooms at a discount.
He further added that one cannot build a brand in hotel industry by discounting. Fabhotels focus on increasing occupancy and optimizing RevPAR by integrating online and offline demand generation through technology.
At present, Fabhotels has 65 hotels with an average capacity of 25-30 rooms across 15 cities. It is recording a revenue run-rate of $1 million per month. The startup aims to reach 100 hotels by September. It also expects the occupancy to increase from 50% to 85-90% during this period.
Notably, Treebo Hotels is also working towards a similar model of budget hotel chain. Last year, it had raised $6 million from Matrix Partners and SAIF Partners. It has over 50 hotels in its portfolio. Reportedly, it is planning to raise another round of $30-$40 million this year.