CAN YOHO BED DO FOR SMALL HOTELS WHAT PICKME DID FOR TUK-TUKS?

Sri Lankan online hotel booking service Yoho Bed can soon become branded hotel rooms’ market leader by taking budget hotels from the fringes to the mainstream

Booking a budget hotel is not easy. You check the rating, analyse the photographs like a crime scene investigator and diligently read every review, mining each word and phrase like a data scientist, to find the best place to spend your hard-earned vacation. The problem is that you can still fall short.

“There’s a difference between what the reviews say and the actual state,” says Usama Naquib, founder of Yoho Bed, questioning the idea of how a personal experience can be common to anyone else. “Because people feel differently,” he says.

Unlike Airbnb, Agoda or Booking.com, Yoho Bed is more than an online hotel room booking service. Its business model is based on its offline capability, and two aspects stand out. First, providing management advice to small bed and breakfast operators listing their rooms on its booking system, all of whom have fewer than 10 rooms. Second, all accommodations listed on its online booking system offer free Wi-Fi, air-conditioning, free breakfast, clean sheets and bathrooms that don’t make you shirk. “What we give the traveler is peace of mind.”

Online hotel booking services have led to the rise in so-called alternative accommodations like bed and breakfasts. In the past, a small hotel would have to depend on references, its own marketing and tourist guides for travellers to discover them. User reviews and online booking have transformed their rate of success, and those with a few spare rooms at home can now become an entrepreneur because they can now rank alongside well-funded hotel chains.

Growing traveler preference for boutique hotels, hostels and vacant apartments are taking business away from large hotel chains. But, there’s one quality alternative accommodations have not been able to replicate: predictability. “The reason people want to go to a hotel is because they know exactly what to expect,” he says.

Within a short span of time, Yoho Bed has gained traction that exceeds early expectations. Following its launch this year, the site has attracted more than 500 hotels to list, totalling more than 3,000 rooms. “On average, eight small hotel owners contact us every day for listing advice,” says Naquib. “What we want to create is a network of budget hotels under the Yoho Bed brand.”

FRANCHISING suits capital-intensive industries like hotels, and has been popular for a long time. Hotel chains enjoy global dominance by simply lending their brand name and hotel management know-how to real estate investors. Now, startups are emulating the same model on budget hotels. This model has taken off in India, giving rise to many successful startups focusing on this segment. OYO Rooms stands out, and is deemed India’s next unicorn.

The idea for Yoho Bed came during Naquib’s 2015 stay in a number of OYO-branded, small hotels in India. “I wanted to understand the nitty-gritties of the business,” he says. “So, I made it a point to stay at five OYO properties in Hyderabad and Chennai.”

Direct involvement allows Yoho Bed to control the quality of the travel experience. The same cannot be said for other online hotel booking companies like Agoda or Booking.com, which are just a marketplace for travellers to find vacant rooms.

Training hotel managers, conducting regular accommodation audits, maintaining call centers and providing branded amenities from soap to towels are additional costs compared to competitors. It’s an expensive model to work, but in the longer run, with scale, Naquib feels it will be sustainable.

IN SRI LANKA, 67% of hotel rooms are in the informal sector (those without a star rating), which dwarfs traditional hotel chains. These include small luxury hotels, villas, hostels and spare rooms in homes. It is also the fastest growing accommodation type, adding 1,650 units in 2015 compared to the branded hotel room inventory, which increased by 354 units.

According to Fathhi Mohamed, operations head of Yoho Bed, there are more than 4,000 properties with less than 10 rooms in the country. “This is our market,” he says.

Mohamed is also one of the two co-founders of PickMe, the popular taxi app. Like PickMe, Yoho Bed is on a drive to build scale to ensure late entrants find it tough to enter. Soon enough, there could be more Yoho Bed-branded rooms in Sri Lanka than those offered by large hotels chains like Jetwing Hotels, John Keells Hotels and Aitken Spence Hotels. To entice property owners, Yoho charges a uniform flat fee for each booking based on the type of the property. For example, all accommodations that fall into the boutique hotel category are charged the same fee irrespective of the room rate set by the host. In contrast, Airbnb charges 6-12% of the rental fee and a subscription fee of 3% from the total earnings of the host. “Our strategy is to go on a velocity.” Financially, it’s far more attractive to sell a room through Yoho Bed, Mohamed points out. “Since properties are going to pay us less, they can reduce the selling price for the traveler.”.

As the number of rooms listed increases, Yoho’s bargaining power to negotiate better deals with suppliers grows. “This will allow us to get air conditioners or bathroom towels at lower rates, and even negotiate lower insurance premiums for properties.”

YOHO BED is a lone crusader in the branded budget hotel booking business. Currently, there are only two visible competitors marketing domestic rooms, India-based startups Vista Rooms and Zen Rooms, a subsidiary of the startup clone factory Rocket Internet. “But, they haven’t clicked yet,” says Mohamed. “You need a lot of local knowledge to do this.” So, competition is still not intense.

“The reason people want to go to a hotel is because they know exactly what to expect”

Booking.com poses the biggest threat to Yoho Bed. Owned by Priceline Group, which also owns travel sites Agoda.com and Kayak.com, it is the world’s largest online hotel booking service. In Sri Lanka alone, it has over 8,500 hotels listed.

The advantage lies in Yoho Bed’s ability to be something more than a mere facilitator between the property owner and the traveler. “Booking.com is just transactional. We go one step beyond that.”

Currently, 70% of Yoho Bed bookings are made by domestic tourists. But, the company expects the share of international travellers booking through its site to increase over the next few years.

According to the Sri Lanka Tourism Development Authority, the country is expected to reach 4 million tourists by 2020, almost double of last year’s tourist arrivals. “We see a lot of interest generated by Russians on the budget hotels segment,” says Naquib. Russian tourists account for 3% of arrivals, totaling 70,000 travellers last year. The company recently hired a Russian interpreter and is creating a Russian language version of its site. “Most Russian tourists stay at budget hotels,” he says.