Budget hospitality chain Treebo is looking to scale up and break even over the next two years even as half a dozen rivals shut shop amid a funding slowdown.
Treebo is eyeing to break even at the operational level by pushing up the gross booking value four-fold to $200 million, Sidharth Gupta, co-founder of Treebo Hotels, told BloombergQuint in an interview. The company’s focus is to become self-sustaining as after a certain point fund-raising won’t be a priority, he said.
Founded in 2015, the Bengaluru-based startup follows a franchise model and provides a minimum guarantee to hotel owners and has an exclusive tie-up them. At present, the company has 270 properties across 52 cities and is also the third largest hotel chain after Taj and ITC.
Profitability that Treebo is looking for can only be achieved if it’s able to standardise its experience across all its properties, but that might be difficult in a franchise-based model, said Anirudh Damani, partner at early-stage venture capital firm Artha India Ventures, which has backed companies like Hotels Around You, Roadhouse Hostels, Vista Rooms and OYO Room. “There is definitely a market and money to be made in the 2-star hotel category. If you want to win the 1-3-star space, you need to have complete control on the experience.”
Gupta understands the challenge. “We know we have to solve it at scale, at a sustainable manner keeping the customer experience at the core.” The startup turned into a hotel chain to have control over that experience.
We wanted to build a hotel chain at a price point of Rs 2,000 and the problem we were trying to solve for customers is poor quality in the budget hotel segment and for the hotel owner’s utilisation of its asset. Therefore, we decided to become a proper hotel chain segment and have exclusive right of the property.Sidharth Gupta, Co-Founder, Treebo Hotels
Treebo survived a funding slowdown along with online budget hotel startups like Fabhotels and SoftBank-backed Oyo, which recently launched budget chain Oyo Townhouse. It has an annualised gross booking value of $50 million and aims to scale to 500 properties and more than double the number of room nights booked to 10,000 a day.
The startup, which has raised $23 million, generated a net revenue of Rs 2.3 crore in the year ended March 2016, of which Rs 1.2 crore came from operations, according to its filings to the Registrar of Companies. It reported a loss of Rs 25 crore during the same period.
Gupta said high expenses were on account of setting up team and developing technology solutions and were more of an investment than a cost.
“In our early days, we were passing on most of the value to our hotel partners to establish our credibility. Now that we have proven what we are capable of delivering for them, we are taking our fair share of value. This has done a world of good to our economics,” Gupta said.
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