Wudstay shows the way to a sustainable business model in the budget hotel segment

The year 2015 proved to be a consistently good one for the budget hotel segment, which registered some major developments.

During the year, OYO Rooms bagged the largest funding of $100 million from Softbank. Zostel entered the low-budget hotel space with Zo Rooms, followed by a series of funding raised from Tiger Global. Similar platform Treebo entered the segment early this year. At a time when the industry was celebrating the investments from seasoned names like Softbank and Tiger Global, one more player silently nudged its way into the segment.

A traveller and entrepreneur, Prafulla Mathur happens to have travelled across the length and breadth of the country. During his sojourn in different places, he stayed at various hotels, both from hotel aggregators and at budget hotel chains. However, his experience in had been far from satisfactory.

Tired by the poor staying experience in hotels across the country, Prafulla (33), who had been running mobile app development company Queppelin since 2010, decided to try his hand at something else. In April 2015, he launched Wudstay, a budget hotel aggregator platform. Today, the platform claims to have reached a stable position and calls itself the second largest player in the segment.

Growth and expansion

The company started operations in June 2015 with presence in two cities and tie-ups with 15 hotels. In eight months’ time, WudStay has already expanded its presence to 38 cities, with over 400 tie-ups and over 4,000 inventories.

In May, WudStay had raised an undisclosed seed round of funding from Simile Ventures. In July, it raised $3 million in its first round from Mangrove Capital Partners and Vikas Saxena, Chief Executive Officer of messaging app Nimbuzz.

In August, WudStay acquired Gurgaon-based Awesome Stays, a two-year-old offline hotel aggregator, for an undisclosed sum.

Last month, WudStay announced its entry into the long-stay segment. The company will leverage its existing expertise and brand reputation to enter the paying guest (PG) accommodation space.

“The highly unorganised nature of the PG market in India is a major cause for concern for individuals who are looking to find homes in new cities. Challenges such as poor location, high brokerage and poor facilities cause discomfort to customers. We are targeting a gold standard in the unorganised long-stay segment,” says Prafulla, 33.

Starting with 50 PGs in Delhi, Gurgaon, Mumbai, Bengaluru and Kota, WudStay aims to double its inventory in the next three months. It will expand its PG operations to Jaipur, Pune, Manipal, Noida and Hyderabad in the targeted duration.

The startup also recently launched a new category, 'WudStay Elite,' where four and five-star properties are listed. “We aim to add the WudStay flavour to luxury travel, making it more stylish and convenient,” Prafulla adds.

In October, Wudstay announced its partnership with Microsoft, to make hotel bookings more accessible and convenient for its users on the Windows platform. Both brands will work together to bring exclusive offers and features to the WudStay app for consumers on the Windows platform.

Upcoming projects

The platform is planning to expand its footprint from the current tally of 40 cities to 65 cities in the next six months, with an inventory of 10,000 rooms.

“Our target cities will be a combination of both business and leisure destinations. While, we have successfully covered all major Indian cities, the target is to now expand to smaller towns and cities. Expansion to the eastern part of India is also on the cards,” says Prafulla.

Eyeing profit

With the news of Oyo Rooms acquiring its main rival Zo Rooms in an all-stock deal, hinting consolidation of weak links, Wudstay claims to be net revenue positive.

“On an average, our ticket size for one night is between Rs 1650 and 1700 per room. We are running profits on rooms we are selling,” says Prafulla.

What went wrong with others?

On what went wrong with others in the segment, Prafulla says that other competitors make the mistake of giving minimum guarantees to hotels. This is where rooms are pre-booked by paying a particular amount of cheque, and discounts are given for those rooms. “That’s where you’re crushing a lot of funds. No matter how big your chest fund might be, it’ll blow up.

That’s the area where we have been cautious. Though we have a chest of $3 million, we don’t go out and pre-purchase inventory and avoid giving heavy discounts to guests. What we have observed in the eight months of operation is that people prefer to stay at safer and stylish places than heavily discounted hotels,” says Prafulla.

Not an easy job

The business of hotel and PG standardisation is an operation-driven model. It requires the team to visit each property to ensure that all quality and service benchmarks are met.

“In our endeavour to be the gold standard of quality in the unorganised hotel segment, our greatest challenge is to ensure that we keep our commitment of quality, safety and style. It is not an overnight process. The team has done extremely well so far to ensure the highest level of customer satisfaction and we hope to be able to continue doing exactly that even as our bookings and hotel network increase,” adds Prafulla.

What others say?

Vikas Saxena, CEO, Nimbuzz says, “In my past ventures I have looked at scenarios where tech advancements can disrupt a large, inefficient market, and make the services cheaper and better for the consumers. With Internet penetration reaching critical mass in emerging markets, I think the time is ripe to repeat the same in budget stays. With 2015 travel market size in India hitting a mark of $70 billion, there is a huge potential for travel technology platform that WudStay has built.”

On the partnership with the company, Harish Vaidyanathan, Director – Independent Software Vendor Programs, Microsoft India, says, “At Microsoft, we are focussed on delivering high-quality experiences across all products and services, for everything that matters in the lives of our consumers. Our association with Wudstay adds great value to consumers on the Windows platform who love to travel.”

YourStory take

The budget hotel industry is a $20-billion market in the country. In the past one year, the industry witnessed various developments, from many new players entering the segment, to the rising interest of investors like Tiger Global and Softbank in the industry.

Amidst the buzz, the impending deal between OYO Rooms and Zo Rooms is a curious case in the industry. The latter entering the segment, raising rounds of funds and now bequeathing the business to OYO raises questions on the business model of the industry.

Amidst this, Wudstay claims to be net revenue positive, without burning much cash on discounts and other freebies. Though the strategy indicates a functioning and sustainable business model, the coming time will give a clearer picture of the platform.

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