Expect gross booking value to rise five-fold in two years, says Treebo Hotels' Gupta

Sidharth Gupta, co-founder of tech-focussed budget hotel chain Treebo Hotels, feels these are great times for the industry as rising incomes, lifestyle changes and digitisation are prompting more middle-class consumers to travel. Gupta had set up Treebo, operated by Ruptub Solutions Pvt. Ltd, in March 2015 along with Rahul Chaudhary and Kadam Jeet Jain. He feels many startups entered the budget hotel aggregation segment over the past 18 months without well-thought-out business models and so had to shut shop despite raising funds. In a conversation with TechCircle, Gupta also talks about his outlook for 2017, Treebo's business model and growth plans.

Excerpts:

What can one expect from travel tech in the near future?

By various estimates, this industry is $20 billion in market size. The good news is that 70% of it is in the budget segment and, therefore, there is a huge opportunity for us in the next two years. So far, the industry had been unorganised and fragmented, but now we will see existing players creating something that had never existed. Essentially, the budget hotels space is going through a period similar to the food and beverage industry of the 1990s, when McDonalds created a budget brand in a large market.

What should industry players do to sustain in this crowded space?

They need to stay razor-focused on two things: customer experience and value creation for partner hotels. When you create value for the hotel owner, he will be able to incentivise and invest in quality services. Subsequently, the consumer will have a better experience. This in turn will get customers to visit the hotel again and again, and spread positive word of mouth. As a result, occupancy and revenue will increase. This is what they need to get right and not fall for the temptation of rapid growth and dilute the business model in the process.

What is Treebo's business model?

For the customer, we and the merchant partner (the hotel owner) is one entity. If the customer has a bad experience, he has every right to blame Treebo for it because he booked it under our brand name. With hotel owners, we operate on a franchise model. The hotel starts operating under the Treebo brand name and follows the prescribed quality standards "the product, the amenities that they provide, the policies of the hotel should be as per Treebo's standards. And, Treebo takes care of the sales and marketing of the property. They take care of the operations, we take care of demand – a win-win situation for both. For the services, we charge 18-25% commission on the revenue from the hotel owner. We also maintain a close watch on the people on ground, conduct staff training on how to treat the guests and use of technology, among others. But, the core responsibility for day-to-day operations rests with the hotel owner.

We only deal with entire properties because we believe in offering a consistent experience to guests. And, this requires you to have a very deep and comprehensive relationship with the hotel owner. Our model does not change irrespective of the size of the property. We work on the full inventory.

Treebo had raised about $17 million in a Series B round in July last year. How have you deployed the funds?

A lot of the money is still in the bank. We have used that money largely across three areas – for building the talent pool, hiring people in several key positions, and for technology upgrade. We have also expanded quite rapidly. When we completed that round of funding, we were at just 70-odd hotels and fairly limited footprint. At present, we are present in 45 cities with 250 partner hotels with an inventory of 6,000 rooms.

How many properties are you planning to have? Are you planning to diversify?

By the end of this year, we plan to have 600 properties. Next year this number should go up to 1,200-1,300. The average size of our properties is 23-24 rooms. We are not into B&B (bed and breakfast) alone. We are a budget hotel category player with conventional hotels-type properties. Of course, in our portfolio of 250, there is some variety, including apartment-type properties. We are not into homestays, but small hotels and serviced apartments. We will not diversify further, at least, not in the near future.

What is the USP of Treebo?

Because of the experience we offer, we are constantly running occupancy above 75%. Our biggest differentiation is the experience that we offer as a hotel chain. Compared to a Lemon Tree or ibis, the big differentiation is the price point. We are truly a budget hotel chain. Our average price point is about Rs 2,000 and this appeals to the large demographic of the country.

Treebo also provides much more flexibility on the location where one can stay. Within Bangalore, for instance, we already have 35 properties – giving the customer a much wider choice. This is not available with some other brands.

Tell us about your user profiles, repeat user rate and month-on-month growth.

Our customer profile is fairly heterogeneous. We see all types of travellers in equal proportion. We have individuals traveling for leisure, or as a couple or family. We also have a lot of small businessmen traveling on work. We have corporate travellers as well. We have about 1,800 corporate relationships – companies that use us for their employees' travel. This is also a significant portion of our business. The truly defining characteristic of our customer is the one looking for great value for money – great quality at, let's say, an average price point of Rs 2000. We observe healthy repeat rates among our consumers in the B2B category – over 80% repeat rates. In the B2C category, we see 45-50% repeat rates.

What are Treebo's revenue targets?

Currently, we are at a gross booking value (GBV) of $55-60 million, annualised. By 2018-end, I expect to be doing about $300 million of GBV. Month-on-month we are growing at 20-25%.

When is Treebo expecting to break-even?

In the past 20 months, we have built the brand and expanded our reach in a frugal manner. This is manifested in the fact that we are the only company in the segment to have a positive contribution margin. Given our growth trajectory, we expect to get there in the next two-three years.

Does Treebo have a particular thread of expansion in mind – religious places or tourist destinations, among others? 

Our proposition is equally relevant for a family on pilgrimage, for a businessman traveling on work, or for a couple on honeymoon. In fact, cities such as Nashik, Madurai and Manali, have done as well for us as some of their larger, metro counterparts. Accordingly, we will follow a broad-based expansion approach, covering both big and small cities as well as different types of cities. How many we add in each city will be calibrated based on the potential of the city.

How is your business model different from that of a budget hotel aggregator? What gives you an edge? 

The first and most significant difference is that we are a budget hotel brand and not an aggregator. Aggregators follow a partial-inventory model and are involved only in selling a few rooms at a property. We follow a full-inventory, franchise-based business model, and are deeply involved not just in sales but also in quality control. By signing up thousands of properties and not focusing on an individual property, the aggregator not only fails to add value to the partner hotel, but it also leads to an erosion of perception value in many cases due to deep discounting and unfulfilled promises. In the absence of value creation by the aggregator, the partner property does not care much about upholding its quality standards. The aggregator has practically no influence to change this. This results in poor experience for the customer.

In essence, the aggregator model is much more similar to that of online travel agencies such as MakeMyTrip and GoIbibo, whereas our model is the same as those followed by reputed hotel brands.