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Budget hotels moving up

Budget hotels moving up

Global startups are using their technology and experience to transform Vietnam's budget hotel market.
07:00, 28/09/2019
(Photo: VET Magazine)

The Singapore-based hotel management and booking platform RedDoorz announced in mid-August it had successfully raised $70 million in a Series C funding round. The four-year-old startup, which has raised $140 million to date, aims to expand its budget accommodation network in Southeast Asia. The new funds will help it compete with its rival, the SoftBank-backed OYO Hotels & Homes, another leading budget hotel aggregator and who is planning an investment of over $50 million in Vietnam over the next few years, as part of its ongoing Southeast Asia expansion spree. Both fast-growing players, along with some other local competitors in the sector, have been gearing up in a race to spread their franchising networks for online budget hotel services around the country.

New arrivals

Entering Vietnam in July last year, RedDoorz now has more than 100 hotel partners in the country and plans to more than double this figure by the end of this year. “The market in Vietnam, like in other countries such as Indonesia, the Philippines, and Singapore, has been doubling in size every six months for the last two years,” said Mr. Amit Saberwal, Founder and CEO of RedDoorz.

As part of being in its brand network, properties add “RedDoorz” signage to their name and are subject to strict quality control in accordance with RedDoorz standards. Travelers are therefore guaranteed that room quality is in accordance with these standards, including quality service from staff members, who are carefully trained, thus enhancing the guests experience. RedDoorz has also developed a free booking app for quick and secure reservations.

OYO Hotels & Rooms, the world’s sixth-largest chain of leased and franchised hotels, homes, and living spaces, opened its doors in Vietnam this year with more than 90 franchised budget hotels in six destinations: Hanoi, Ho Chi Minh City, Da Nang, Phu Quoc Island, Vung Tau, and Nha Trang. “With 1,500+ exclusive rooms, we are working towards delivering standardized and high-quality accommodation to travelers and tourists in Vietnam,” Mr. Dushyant Dwibedy, Country Head of OYO Vietnam, told VET. “We aim to grow to ten destinations and 20,000 exclusive rooms by the end of 2020, while becoming a household hotel name for both local and international travelers.”

Technology continues to be a key growth driver and competitive advantage across the global hospitality landscape, and OYO utilizes technology to facilitate the standardization of services, amenities, and the in-room experience. “Technology is deeply embedded in OYO’s DNA and we are the first company anywhere in the hospitality sector in the world to introduce technology-based solutions on the suppliers’ side to help them manage end-to-end operations,” he said.

Similarly, by partnering with RedDoorz, hotel partners will have access to RedFox, its trademarked dynamic pricing and inventory management tool for revenue optimization, as well as RedPartner, its hotel management platform for operational excellence. All partner hotels are also advertised heavily both online and offline, especially through its mobile app, which provides great convenience for customers as it can accept digital payments via credit cards, bank payments, and e-wallets. “We also help partners in ensuring smooth operations and consistently high service quality,” said Mr. Saberwal. “We take care of all aspects of distribution, sales and marketing, and management technology.” 

Meanwhile, RedDoorz and OYO’s local rival Aharooms, another budget hotel management and booking platform, has acquired more than 100 affordable hotel partners since inviting them to join its network last October. “Aharooms now focuses on improving hotels’ revenue and occupancy by increasing their identification and visibility on OTA channels and developing more business and guests from our travel agent partners,” said Mr. Ngo Duc Nguyen, CEO of Aharooms. “Aharooms also provides free technologies for our partners, including hotel management software, omni-channel sales systems, and apps for better customer care.”

Room for growth

The budget accommodation space in Vietnam still brings in good revenue and profits compared to elsewhere in Asia, like China and India, thanks to moderate supply, strong growth in domestic tourists and business travelers, and major sources of inbound tourists from overseas, according to Mr. Nguyen. “However, hotels in this segment are still operating on a small scale, failing to maintain stable sales teams and customer care staff,” he said. “Most of those hotels’ owners do not have a background in hotel operations and face a lot of difficulties in optimizing room rates, limited sales channels, and not having enough tools for customer care.”

This is an opportunity for franchise hotel brands like Aharooms, through bringing in guests, standardizing operating processes, optimizing revenue, providing solutions on technology, administration, and customer care, and diversifying channels for approaching customers.

Mr. Dwibedy from OYO sees that the market offers it a huge, untapped opportunity as there are thousands of hotels in Vietnam waiting to be standardized with technology as an enabler. “We are using our expertise in managing a chain of hotels backed by our technological innovations to create a unique ‘localized’ business model for the country,” he explained. “This has made it possible for us to offer high-quality standardized experiences at an unmatched scale. All our efforts are aimed at enriching the experience of travelers in Vietnam by offering a hospitality experience they can trust, using intelligent technologies to bring innovation to the heart of the guest experience.” 

Vietnam’s tourism industry has been growing steadily over the years and at the same time smart or budget travel is on-trend, with people travelling more while still looking to pay less and enjoy great value and high-quality experiences. However, Vietnam’s budget hotel industry is currently quite fragmented, with no consolidation and no implementation of technology. These budget hotels are losing out in the competition and detaching themselves from customer expectations, according to Mr. Saberwal from RedDoorz.

He added that even though the internet economy is booming in the country, these hotels still depend heavily on traditional, labor-intensive processes. They lack the expertise and resources needed to manage the quality of their hotel services as well as the skills of their staff. Property owners who partner with RedDoorz not only benefit from the company’s growing brand but also its creative marketing strategies, online booking platform, and top-class hotel management professionals, which help them increase their potential for growth. With its combined expertise in hospitality and e-commerce, RedDoorz prides itself on having the capacity to boost its partners’ occupancy rate to up to 70 per cent in just two months.

Tackling issues

Despite helping local accommodation providers improve their business performance significantly, these providers still face a host of obstacles in the country’s fragmented hospitality market. “Our target partners are the owners of budget, three-star and below hotels, so the majority of them have been doing business in the traditional way for years, without the help of technology or even common standards on facilities and service quality,” Mr. Saberwal said. 

“We have observed that, in Vietnam, different hotels follow different standards, so a three-star hotel in Vung Tau can be very different from a three-star hotel in Da Nang,” he went on. “It has therefore been a highly exciting challenge for our Business Development team to convince these hotel owners to change their processes and adjust their service to RedDoorz standards.” 

While it may not pose a substantial challenge, the road to localizing a product involves efforts ranging from hiring local talent that fits into the organization’s culture to improvising tech products, according to Mr. Dwibedy. “At OYO, owing to rapid and effective global expansion, we have gained expertise in these elements and will be utilizing talent and tech to transform Vietnam’s hospitality landscape while adding value to the experience of guests and asset owners alike,” he said.

Mr. Nguyen Quoc Huy, Managing Director of Portier Technologies, a mobile guest solutions provider for the luxury hospitality market, also identified other challenges for budget hotel platforms. In terms of branding, most owners want to have their own hotel name and don’t want to change to OYO or Redoorz. Regarding the average daily rate (ADR), they have cut rates recently to gain market share, but this is not a good sign for budget hotels. High commission fees are also an issue.

Each country has its own unique challenges and opportunities. The recent boom in tourism is generally good for Vietnam but the sector has developed rapidly and principally around low value add, according to Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam. 

In such a context, hospitality startups have been showing their ambition to transform the country’s hospitality landscape by creating quality living spaces. RedDoorz aims to expand its network to more than 220 hotels in six major cities in Vietnam by the end of this year while looking to double the number of partner hotels and expand to other cities in the years to come. Meanwhile, Aharooms has also set an ambitious plan of having 500 hotel partners by the end of 2020. 

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