Nathan Boublil, Co-founder and CEO of ZEN Rooms
ZEN Rooms, a franchise of economy and mid-range hotels in Southeast Asia, just received a shot in the arm in the form of an investment from Korea’s billion-dollar travel group Yanolja. The Yanolja-ZEN alliance is expected to intensify the competition in the market, which is currently dominated by local player RedDoorz and India-based OYO Rooms.
According to Nathan Boublil, Co-founder and CEO of ZEN Rooms, these companies don’t pose any threat. “OYO suffers from poor inventory quality and average ratings, and so does RedDoorz,” he says.
In this interview with e27, Boublil talks about the market, competition, and challenges faced by budget hotels companies in Southeast Asia.
Is this an acquisition? After this deal, how much stake does Yanolija hold in ZEN Rooms?
Nathan Boublil: Yanolja is doubling down on its earlier investment by making an additional investment, buying our of early investors’ stakes, and forming a full strategic alliance on technology and distribution with its backers Booking Holdings.
So the transaction is a partial exit with a path for more to come.
The budget hotels segment in Southeast Asia is heating up, with leading players such as OYO and RedDoorz raising massive fundings. Does this indicate the industry has become mature and is ripe for consolidation?
NB: The budget hotel industry is still far from being mature; the penetration of franchised hotels in Southeast Asia (SEA) still remains low at less than 20 per cent (including ZEN Rooms, OYO, Reddoorz and all other legacy hotel chains). Mature markets such as the EU, the US and China have more than 50 per cent of franchised hotels.
Also, SEA is the world’s fastest-growing travel market, so a lot of supply will naturally come onto the market.
RedDoorz is a local player, and OYO is a company with deep pockets. How is the ZEN-Yanolja alliance planning to hold these bulls by their horns?
NB: Both RedDoorz and OYO make crucial mistakes in customer centricity and sustainability. They focus on the number of rooms rather than customer satisfaction and margins. They use too many short-sighted tactics to artificially pump vanity metrics, to the detriment of building a long-term value-adding hospitality brand.
There are no shortcuts in hospitality. A hospitality franchise is not its room count but is the quality of its inventory (guest ratings) and its economics!
Since day one, our focus has been more on inventory quality and customer ratings, more than room count. Room count is not a KPI at ZEN. For two years in a row, ZEN has the highest guest rating on Booking.com of all budget franchises at 8.1.
OYO suffers from poor inventory quality and average ratings and so does RedDoorz, with average rating on Booking.com in the low 7s.
Of course, this is a very unsustainable model, which cannot last for long. The market ends up catching up with you and investors will, too.
So we are different from OYO and RedDoorz in the following ways:
- We do not focus on room count but prefer to focus on inventory quality and customer ratings: Unlike Reddoorz and OYO, we pro-actively reject inventory and are as focused as much on customer ratings as other metrics. That is why our avg rating on Booking.com is 8.1 and our last 12 months NPS score is 55. The Reddoorz and OYO inventories are of inferior quality, which is senseless. The ‘raison d’etre’ of a hospitality franchise is to serve customers better than independent hotels. If you have thousands of properties but don’t do a good job serving customers, you are just a bigger lousy thing!
- Focus on unit economics/margins: the unit economics of OYO and RedDoorz don’t look good presently with a lot of loss-making inventory. Adding more losses doesn’t make earlier losses disappear. As Scott Galloway puts it, “WeWork part Deux”.
- Much more hands-on: we started leasing and fully operating properties three years ago, now representing 30 per cent of our overall portfolio. We love being hands-on and highly operational and can fully operationalise a property to 8.5 guest rating within four weeks. OYO Southeast Asia doesn’t, and RedDoorz is only just starting lease and operate.
The strategic alliance with Yanolja and its backers Booking Holdings grants ZEN a huge and above all, unique competitive advantages in both hotel technology and sales distribution, which cannot be replicated by any other actor.
Having Booking Holdings as a de facto investor in ZEN is unique.
We always behave with integrity to our hotel partners. We don’t and never will use shady tactics with our hotel clients.
So just like any healthy hospitality business should, we have never and will never favour vanity metrics like scale/revenue over guest ratings and margins. Our philosophy, values and focus points are different, and we would instead not be associated with either OYO or RedDoorz.
That’s why we are the first to go through a strategic investment last year and now partial exit already to a leading, sustainable player like Yanolja.
Yanolja said it plans to leverage new-age tech such as IoT, AI, AR and VT etc. Can you shed more light on this?
NB: Yanolja is heavily investing in hospitality R&D to build the budget hotel of the future. This is being done by automating more and more functions within hotels (self check-ins, robotics, voice controls, sensors etc.) and improving cost efficiency through smart connections between hotel software and hardware (electric system, etc.).
ZEN and Yanolja are planning to introduce these new technologies into ZEN’s locations starting Q1 2020, enhancing customer experience and optimising operating costs, thus allowing value-for-money improvements.
Yanolja also recently acquired eZee, the #2 hotel PMS provider globally and #1 in Southeast Asia. ZEN, eZee and Yanolja teams are currently working hand in hand to build the hotel operating system of the future. Yanolja is announcing the global launch of its new hotel automation solution at the ITB Asia conference this week.
What are the current trends in the budget hotels space?
NB: Hotel franchising in the region will keep growing for the next decade, following the US and China paths. Budget hotel space in SEA has long been a sub-performing industry due to its high level of fragmentation and lack of training and efficiency.
Travellers become more demanding to the quality of essential services, while online reviews play a significant role in customer choice. Hotel owners struggle to compete for demand with ever-growing operating costs. In the last four years, ZEN has been working hard on solving these pain points through franchising, bringing transparency and efficiency to the market.
Does the overall slowdown in the real-estate space affect this industry?
NB: No, as no matter what, SEA remains a fast-growing travel market and is far from reaching its potential. The growing middle class and economy airlines across the developing markets of the region fuel the exponential domestic and regional demand for short-term accommodation. The fundamentals of economy tourism in SEA are strong irrespective of the economic climate.
Franchising is a good option for real-estate asset owners as it allows to turn a property into a working business and generate stable returns coming from this growing travel industry.
What are the major challenges facing the budget hotels space in SEA?
NB: Improve itself to cope with fast-growing demand: hygiene, safety, value for money.
Adapt their offer to new sources of tourists: Chinese, Europeans, Southeast Asians etc.
Sustainable growth of hotels supply: with the lack of regulation, what tends to happen is uncontrolled overinvestment in trendy destinations, resulting in oversupply of hotels in the long term: Bali, Phuket and many other destinations in Thailand have suffered from this already.
Once a gold mine, Bali has now become a nightmare for many of the 10,000 hotel owners there, experiencing average occupancy below 50 per cent throughout the year and struggling to make ends meet.
The post ‘RedDoorz, OYO use too many short-sighted tactics to artificially pump vanity metrics’: ZEN Rooms CEO Nathan Boublil appeared first on e27.