Softbank backed India’s Second-Most Valuable Start-up OYO finds itself stuck by a grave controversy. OYO’s franchise Hotels raise claims for Fraudulent Business Conduct.
Is Ritesh Aggarwal led OYO Rooms crossing another line for Profits? India’s second most valuable start-up OYO Rooms’ is smacked by a grave controversy around its conduct of business. This isn’t the first time that OYO’s modus-operandi has found itself at the firing end of an apprehensive line of questions.
Several eyebrows were raised when OYO implemented a digital register mechanism that allows it to share customer data in real-time with the government. It was inferred as a “Threat to Privacy” by many people across the country.
Further, OYO rooms have been accused of practicing predatory pricing. Several hoteliers cited that OYO doesn’t follow its own agreements thus creating an OYO-Hotels dispute. They also mentioned the world’s fastest-growing chain of hotels threatening them of unilaterally changing some clauses or not paying them.
‘Grave’ Claims by Hoteliers
OYO Rooms finds itself smacked by a grave controversy around its conduct of business. Hotels who had partnered with OYO across different parts of the country are indignantly unhappy by OYO’s way of operating. Some of them even referred OYO as the biggest online fraud asking for a criminal probe against Founder Ritesh Aggarwal. According to Reuters, two hoteliers in Karnataka filed volitional police complaints last month accusing Aggarwal of fraud, by the way of deceitfully increasing commissions.
Agarwal was successful while appealing to the Karnataka High Court for a stay order on one case. While the investigation continues on the other. Several Hotel groups and associations are protesting across pan India. Many of them have even quitted the OYO network already, upon discovering discrepancies in their monthly statements.
The situation with OYO has gone from bad to worse. We want to make sure the business of small hoteliers isn’t hurtPC Rao, President of the Bruhat Bangalore Hotels Association
OYO confirms that upon successfully serving the 30-day notice period and settlements of accounts, the property is delisted within 72 hours. However, three hoteliers have contacted OYO representatives to remove their properties from the OYO network but to no avail. Their properties were still listed and depicted as “Sold Out”. The underlying OYO Rooms controversy is unresolved as of now.
OYO’s revenue model depends upon the commission. It typically abstracts a 20% cut on franchise revenue on the bookings of rooms. It provides a device to all its partners, to operate and manage bookings, upon joining their network. OYO says we update hotels of any new contract terms on their device.
On the other hand, the Hotel owners are saying as the device is managed by Junior Staff. Hence, it leaves them in the dark until fees have been charged. Ashraf Ali, a hotelier in Mumbai, said notification with new terms keeps popping until the hotel employee hit accept.
In light of these facts, it’s worth asking, if Ritesh Aggarwal led OYO Rooms is actually crossing a line just to subjugate profits?
Profit and Future of OYO Rooms
Last year, OYO Hotels & Homes completed it’s transition to become a 100% leased & franchised hotel chain. With 458,000 rooms globally, OYO realized a value run rate of $1.8 Billion by December 2018. Softbank backed OYO rooms claim itself as the World’s fastest-growing Hotel Chain. OYO has already entered several countries across the global front including the likes of the US, UAE, China, and the UK.
The Hospitality service start-up is looking to raise $1.5 Billion at a valuation of $10 Billion. Founder and CEO Ritesh Aggarwal is looking to raise his stake in the company from 10% to 30%. Ritesh would be investing $700 Million to buy shares from Sequoia and Lightspeed.
Aggarwal recently assured that he is confident about the business. He also mentioned that he intends to make OYO a global brand out of India.
We truly believe that we will be able to build a truly global brand out of India while ensuring that the business is run efficiently and with a clear path to profitability.Ritesh Aggarwal, Founder & CEO Hotel Rooms
While Aggarwal’s focus is profit-centric, it seems he has somewhere forgotten about the gracious hospitality of his partner Hoteliers as they continue to wail.