Budget hotel manager RedDoorz leverages technology for success

/ EdgeProp Singapore |

November 1, 2019 10:00 AM SGT

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SINGAPORE (EDGEPROP) - Budget hotel management companies in Southeast Asia are grabbing market share in the region’s affordable hotel industry. They are disrupting the three-star-and-below hotel segment, transforming the previously fragmented hotel inventory into standardised, affordable accommodations under brands such as RedDoorz, Oyo, and Zen Rooms. Backed by major venture capital funds, these companies leverage technology platforms to help them rapidly scale up their businesses.

Homegrown start-up RedDoorz is one of the top players in this competitive industry. The company has already raised close to US$140 million ($190.8 million) from investors such as Rakuten Capital, Qiming Venture Partners, and the International Finance Corp. Its latest round of funding in August this year saw it raise US$70 million at the close of its Series C funding, led by Singapore-based equity firm Asia Partners.

Amit Saberwal, CEO and co-founder of RedDoorz, prefers to keep the company nimble and scalable to technology (Picture: Samuel Isaac Chua/EdgeProp Singapore)

RedDoorz was co-founded in 2015 by Amit Saberwal, who is CEO of the company, and Asheesh Kunwar Saxena, who is the firm’s CTO. The start-up has grown five-fold y-o-y and is in more than 100 cities across Indonesia, Singapore, the Philippines, and Vietnam. In September this year, the company announced that it has achieved about 600,000 occupied room nights per month across its network of more than 1,500 hotel properties and is on track to increase the number of hotel rooms it manages to one million by the end of this year.

Fast-paced growth strategy

According to Saberwal, a fast-paced growth strategy has been the company’s modus operandi since its inception. “We didn’t want to go the traditional hospitality model of moving into one property at a time, first building it, then franchising or managing it. It didn’t sound revolutionary enough,” he says.

A hospitality graduate from India, Saberwal was director of sales and marketing at The Park Hotels in Bangalore and New Delhi, before stepping up in 2005 as chief business officer of online travel booking site MakeMyTrip.com. He was part of the leadership team that led the company to its successful listing on the Nasdaq in 2010.

Saberwal saw a gap in the Southeast Asian hotel market during his tenure at MakeMyTrip. “I realised how under-penetrated by technology the affordable hotel industry in Southeast Asia had been; even the larger hotel chains are still traditional in their thinking because most of the hotel management staff have a traditional hospitality background.”

Franchise scheme

RedDoorz initially provided an online booking platform for two- and three-star hotels in Jakarta, but quickly realised that the single-owned hotel properties did not have the staff numbers or training to fully utilise the platform. “We realised that we had to treat our suppliers as asset owners, and keep them focused on running their assets well, and we need to do everything we can with our technology to drive customers to them,” says Saberwal.

The company typically manages three-star budget hotels, such as RedDoorz Premium in Balestier (Picture: RedDoorz)

Jakarta was the company’s landing point due to its large domestic travel audience, large inventory of budget hotels, and relatively high technology penetration rate. According to Saberwal, domestic travellers are the highest proportion of repeat customers that help sustain the business, where typical budget hotel room rates go for close to $20 per night in the capital city.

Today, most of the hotel properties managed by RedDoorz are licensed under a franchise, and the company helps hotel owners grow their business and revenues while streamlining their operations under a standard rulebook. This includes distribution, marketing, pricing, customer experience, and technology solutions.

Inventory ramp-up

RedDoorz opened its first hotel in Singapore in January 2017, followed by the Philippines in January 2018 and Vietnam in July 2018. According to Saberwal, each entry into a new city or country is akin to a relaunch of the RedDoorz brand.

“If you compare countries – what are their payment habits; how does a hotel property pick up its occupancy, in terms of overseas travellers; are the length of stays the same in each country? It’s like launching a new business in every market. But we have the fundamentals in place and a strong tech platform behind us,” he says.

RedDoorz helps hotel owners grow their business and revenues while streamlining their operations under a standard rulebook (Picture: RedDoorz)

In Singapore, while overall hotel room rates tend to be higher compared to the rest of the region, a small domestic market means that hoteliers depend on international travellers to fill rooms. An entrenched hostel market in Singapore is also the first time RedDoorz must contend with competition from an alternative affordable hospitality niche.

Most hotel owners would also rather RedDoorz take the property off their hands and they would rather lease the property. The first RedDoorz-branded hotel in Singapore is a 65-room hotel at 400 East Coast Road, at the junction of East Coast Road and Telok Kurau Road. According to RedDoorz, the shophouse property is leased to the company as the owners prefer to be hands-off and do not run the hotel as their core business.

There are 17 other RedDoorz hotels in Singapore centrally located in areas such as Aljunied, Balestier, Beach Road, Bugis, Chinatown, Clarke Quay, Farrer Park, Kallang, Kembangan, Lavender, Little India, and Serangoon.

RedDoorz manages 18 budget hotels in Singapore, including one in Little India (Picture: RedDoorz)

The company has announced that it will add 11 more hotels in Singapore by the end of next year. Saberwal says: “The concentration of our properties is still largely central so we would love to have more in the East Coast area where we only have one property. We think there is a fair amount of hotel demand for the area.”

Saberwal says he “admires” what competitors – such as Fragrance Group, which owns the Fragrance Hotels and also has a franchise with Accor for 15 of its hotels under its privately held Global Premium Hotels portfolio; as well as Worldwide Hotels, which owns the Hotel 81 and Value Hotel chains – have accomplished in Singapore over the past 50 years. However, he eschews their asset-heavy approach and prefers to keep RedDoorz nimble and scalable to technology compared to the large property owners.

Partnership with developer

Instead, Saberwal says he would rather partner with a developer who can construct at least 100 hotel properties that RedDoorz can manage under its standard management plans and operating procedures. While he has held casual conversations around this topic, there are no serious or formal discussions taking place. But he also thinks it is a matter of time before he can find a good partner to embark on this project together.

Looking ahead, RedDoorz will establish a foothold in Thailand next year, as well as continue to focus on its existing markets. In Indonesia, RedDoorz is still adding 100 new hotel properties each month and the company will continue expanding its presence in the country for a “long time”, says Saberwal. Most of the new properties in Indonesia will be two-star hotel properties, with some in the 3- to 3.5-star category, he adds.

There are more than 150,000 single-owned budget hotels in Southeast Asia, and young hotel management start-ups only account for about 3,000 budget hotel properties in the region. According to Saberwal, all the large players, such as Oyo, Zen Rooms, and RedDoorz, have barely scratched the surface of the market, and there is still a long road ahead for these companies to grow.

A long-term goal that Saberwal is eyeing is an initial public offering for RedDoorz by 2023. While he would like to get RedDoorz listed on Nasdaq in the US, he feels that Singapore’s status as a financial hub in Asia also makes it ideal.

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