‘Looking to expand internationally in the next five years’

Up until a few years ago, the easiest way to book a budget hotel was by looking for individual Mom-and-Pop hotels through word-of-mouth, via travel agents or, if lucky, by searching online and finding some credible contact information. However, much has changed in the past decade plus and it changed with the emergence of online booking platforms promising potential guests access to budget hotels. One among them is Treebo Hotels, a budget hotel chain that has made a name for itself and become one of the first brands with a recall value, especially when Indians think of booking hotels at affordable rates.

Manchise, not franchise, model

Treebo operates on what is generally understood to be the franchise model. However, Sidharth Gupta, Co-founder, Treebo Hotels, clarifies what the company calls its model of operations. “We call it the manchise model because it is different from the conventional franchise model. In a franchise model, you would be more hands off, you would pretty much be just licencing your brand and everything else is done by the franchisee. In our model, it’s not like that as we take care of the entire sales and marketing on behalf of the franchisee. So, we bear the associated costs and take complete accountability,” he explains. 

Gupta says this means the Treebo model is more involved than a typical franchising agreement. However, on the other hand, it is not the same as a management contract because the brand in that case will be running the entire property itself, with the asset owner playing no role. “So, it’s a bit of a hybrid of both,” he says.

But surely, this model comes with its own pros and cons. 

“This model is very effective in earning trust and confidence of the asset owner because they understand and appreciate that you are an equal partner and an equal risk taker in the business as opposed to just providing your brand and disappearing. The fact that we are the ones who are bearing all the costs associated with sales and marketing tend to give more comfort and confidence to the asset owner who is assured that we will not just charge them for providing the brand name. It is important as it helps in discovery of the property but it is not limited to that,” reveals Gupta.

However, the situation is tricky because the challenge is also related to the same. “In a way, it is your accountability to generate demand for the property. It’s also your onus to manage the distribution channels and the cost associated with these distribution channels in such a way that your economics work, because the way we work is that we charge a certain fixed revenue share from the owner. If we don’t manage our channel mix carefully, the costs can be high which could eat into the limited margins we have,” says the Treebo founder, adding that was exactly where the company had built its expertise and had been able to “crack the code”. 

Target segment

Treebo caters to budget or economy segment as Gupta says this was the segment in which there were ample opportunities. In other segments, other brands already existed and operated. “It was in the economy bracket, with price point below Rs 3,000-3,500 where the opportunity was visible. A majority of country travels at that price point and yet there were no brands in the segment when we started. It was completely dominated by Mom-and-Pop standalone hotels,” Gupta recalls.

But the budget segment is mainly about pricing and pricing it right. To distinguish this pricing, Treebo offers three different categories of hotels – economy, standard and premium. However, some of the economy hotels under Treebo cost more than some of the standard ones. 

So how exactly does the pricing work at Treebo? “There are so many factors involved with pricing. In hospitality, dynamic pricing has increasingly become common, which is completely a demand-supply equation. All these factors affect that equation. The only way to compare and see whether prices are low or high is to compare like to like. For example, if you were to look at the same micro market on the same day, and if you were to compare an economy hotel versus a standard hotel, you would, in all likelihood, see a lower price for the economy hotel. But that does not mean that all economy hotels will be cheaper than all standard ones as there are many nuances,” Gupta explains. This, he says, is what smart pricing is all about in the hospitality sector. A lot of technology is deployed in this area by the company and some very “talented and capable people” in its Centralised Revenue Management team use a lot of data and analytics to set the prices for every room of every hotel every day.

On road to recovery?

A number of hospitality and travel brands reported a successful Easter weekend this year, which many took as a positive sign, especially as the past two years witnessed subdued travel trends. This was also the case for Treebo as Gupta says this Easter weekend’s Saturday was the biggest non-December day in the history of the organisation. He says that in India, the biggest business days for the hospitality sector come in December. “It was phenomenal and brought a lot of cheer to our hotels, our teams, and of course, to the industry in general,” Gupta says. In fact, in April 2022, the company recorded a 100 per cent recovery on its revenue ever since the pandemic struck two years ago. “The recovery is looking strong. In fact, this time we feel that unlike previous years, we may not see any low season at all,” he predicts.

Preparing for the road ahead

With the pent-up demand leading to guests coming back to hotels with full force, the industry has to be prepared and in a better form now than ever because expectations are at an all-time high. Gupta shares how Treebo has been preparing for this.  “We are expanding quite aggressively and in any given month, we are typically adding between 70 and 100 properties, which is massive on a base of about 750 hotels we currently have. We are ensuring we restore the experience we were able to offer pre-pandemic. We are hiring more people in our quality control team, launching new staff training initiatives and hiring people in the B2B sales team,” he reveals.

Emerging trends 

A trend Treebo has noticed over the past couple of years is about people’s ‘now careful stance’ when it comes to hygiene. Booking patterns seem to be changing too. The biggest trend the company has witnessed is the move towards trusted branded providers, Gupta says, adding that while people were more open to experimenting with unbranded properties before the pandemic and to book at the last minute is no longer the case. That, he believes, is one of the reasons behind the healthy recovery Treebo has been experiencing. 

Way forward

While Gupta doesn’t share specific numbers about his expectations this fiscal year, he says this calendar year, Treebo is expecting to record a growth of three times in comparison with 2021 in terms of revenue and supply footprint. He believes that looking at the data till April 2022, the organistion seems to be well on track to turn these expectations into reality. 

Speaking on a longer timeline of the next five years for the industry, he says one thing that would certainly happen is adoption of technology. “One good thing the pandemic has done to our industry is to have woken up industry leaders and companies in general to the need for adopting more technology. The pandemic taught us that when you have to cut costs, you need to rethink how you can do something using technology than using people,” Gupta opines. 

Treebo is specifically looking at achieving profitability and Gupta says the company is well on track towards that end goal. Over the next five years, he hopes to expand internationally, beginning with South Asia, Southeast Asia and the Middle East.