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While rivals struggle, RedDoorz sees ‘exponential’ growth with $11m new funding

While rivals struggle, RedDoorz sees ‘exponential’ growth with $11m new funding

While rivals struggle, RedDoorz sees ‘exponential’ growth with $11m new funding
March 12
12:53 2018

RedDoorz’s first fully leased property located in Singapore / Photo credit: RedDoorz

The last couple of years have seen a slew of bad news from Southeast Asia’s online budget-hotel booking industry. In Indonesia, Nida Rooms faced financial trouble, while rival Tinggal has hung up its gloves and pivoted to another business model. Recently, a rumor broke out about Zen Rooms’ alleged impending shutdown. Launched by Rocket Internet, the company operates in several markets across the region.

Yet one player seems to be bucking the trend. Singapore-based RedDoorz today announced it has bagged US$11 million in its pre-series B round to “grow exponentially” in its current markets. This follows a US$5 million series A round closed toward the end of 2016 but was only disclosed today.

RedDoorz and its rivals take after SoftBank-backed Oyo Rooms from India: They buy an inventory of rooms from budget hotels and spruce them up to provide a standardized service in terms of cleanliness, bed quality, and things like wifi. Users can then book these rooms online.

Since its launch three years ago, RedDoorz has accumulated rooms in 500 properties and serviced over 700,000 stayed nights in Indonesia, Singapore, and the Philippines. In Indonesia, the region’s biggest market, it operates in 16 cities and expects to be profitable soon.

Overall, the startup seems to have overtaken most of its competitors in several metrics.

A larger war chest

The company’s founder and CEO Amit Saberwal estimates the region’s travel market to be worth about US$52 billion. Of the amount, the whole accommodation industry accounts for about US$20 billion, and budget hotels around US$12 billion.

While the market potential may be large, it is difficult to tap into. Players need to spend millions of dollars to brand small and unorganized hotels – apart from buying their inventory for months. Occupancy rates tend to be low at the beginning, so they have to invest in marketing and building customer loyalty.

They must train the hotel staff to provide the level of service they aim for.  Even then, because they don’t directly employ the staff, there’s a risk that the personnel won’t be able to give the same customer experience on a consistent basis. This and funding might be the areas where many players fall short.

Data shows RedDoorz has the most firepower to continue spending on growth.

In 2016, Nida Rooms experienced a cash crunch and reportedly couldn’t pay employees and vendors. A US$5.6 million round led by investment firm Shanda Group in February 2017 allowed the startup to stay afloat. (Its website has also been renamed as Hotel Nida, but its app is still called Nida Rooms.)

Tinggal, on the other hand, decided to pivot to a software business for small hotels, saying that the unit economics of the hotel-room aggregation model didn’t make sense. The firm said most of the revenue from its hotel bookings was paid to the property owners and platforms like Traveloka and, which marketed its branded rooms.

In the meantime, Zen Rooms confirmed to Tech in Asia that it’s laying off a percentage of its staff and undergoing restructuring as it optimizes its budget. While it denied that it’s closing down, a source familiar with the matter told us that an expected funding deal for the startup had fallen through, leaving the startup in a precarious financial position.

In terms of web traffic and app rankings, RedDoorz has zoomed past most of the other players.

In Indonesia, it’s trailing behind a formidable contender – Airy Rooms. Airy is widely believed in startup circles to be affiliated with heavily-funded Traveloka.

Saberwal boasts that 65 percent of RedDoorz’s overall user base are repeat customers. He declined to disclose revenue figures, but said that the company will be “profitable in Indonesia in the last quarter of 2018” as it’s “still balancing growth with profitability.”

He attributed the company’s traction to several factors. First, he said faceless budget hotels have come to trust their brand after it brought up their occupancy rates from 50 percent to 80 percent on average. This is largely thanks to the firm’s proprietary tech that forecasts demand in specific areas.

From the consumer standpoint, he explained: “We take care of everything. For example, when a customer is 115 meters from the property, the property gets an alert that the customer is coming. When the customer arrives, he doesn’t need to wait, he just checks in. We implemented strict guidelines to make sure our rooms are according to our standards [..] and we have a strong loyalty program.”

He added that they started with a narrow geographical coverage first to make sure that the model worked before expanding to other areas. “We decided to go one city at a time, one country at a time. When we first launched, we didn’t do more than three cities in Indonesia. The idea was to go deep and hard, and understand everything about the market. When we’ve put a city on the path of profitability, only then do we move to another.”

While RedDoorz also taps third-party travel booking platforms to resell its rooms, most of its bookings come from its own site and app, he pointed out.

RedDoorz CEO Amit Saberwal / Photo credit: RedDoorz

From aggregating to fully leasing

After solving the demand side of the puzzle, the next step for RedDoorz was to move up the value chain by fully leasing and operating properties, according to Saberwal. It recently unveiled its first such property – a 65-room colonial shophouse near the popular East Coast Park in Singapore.

This new model has its own set of advantages and challenges over the flagship room-aggregation model.

It allows RedDoorz to have full reign over the day-to-day operations of the properties, improve the customer experience, and potentially have a better repeat rate. The startup also gets to keep the revenue from bookings in full, rather than splitting it with property owners.

The downside is that bringing such properties onboard is slower because it takes time to find them, and a lot of research goes into choosing the right property. RedDoorz also needs to shell out an amount to rent the space from the building owner.

Nevertheless, “it has the potential to be more profitable,” claimed Saberwal. “It will add more to the bottomline as we grow the number of leased properties we have.”

Nida Rooms is going after the same strategy. In an email response to Tech in Asia, Nida Rooms founder Kanesh Avili said the startup stopped the integration model with its hotel partners last February 28, and is “now fully focusing on leasing and operating hotels under the Hotel Nida brand.”

Nida Rooms has also zeroed in on Bangkok and Kuala Lumpur, where it’s operating three hotels and one, respectively. Avili stressed that they have not exited their home market of Indonesia, and will expand the new brand there next year. “We are working to grow our hotel network to 20 hotels by June and 60 by the end of 2018.”

RedDoorz, for its part, plans to have 100 fully leased properties and 1,000 more properties under the aggregation model in its existing markets. “We will continue to keep both models,” Saberwal noted.

Asia Investment Fund of Susquehanna International Group, International Finance Corporation, and Jungle Ventures invested in RedDoorz’s series A round.

They returned in its pre-series B, along with Jungle Ventures and new investors such as DeepSky Capital, FengHe Group, and Hendale Capital.

This post While rivals struggle, RedDoorz sees ‘exponential’ growth with $11m new funding appeared first on Tech in Asia.

source : techinasia

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