A screen grab of FabHotels website
A screen grab of FabHotels website

FabHotels aims to grow larger than LemonTree, Ginger by 2016 end

FabHotels plans to add 400-500 rooms per month, increasing its inventory to more than 3,000 rooms across 20 cities by December

Delhi: Budget hotel brand FabHotels, which has modelled itself around Chinese hotel chains Homeinns and China Lodging that have built billion-dollar businesses, has set its sights on growing larger than homegrown brands LemonTree and Ginger by the end of 2016.

The chain plans to add 400-500 rooms per month, increasing its inventory to more than 3,000 rooms across 20 cities by December. FabHotels currently has partnerships with 100 hotels in 15 cities, offering about 2,500 rooms.

Under its asset-light, franchisee model, FabHotels partners with smaller hotels, which have 20-25 rooms on average, to provide standardised services to budget travellers. The ownership and name of the partner hotel remain unaffected but it operates under the FabHotels brand.

“Apart from demand generation, we (FabHotels) provide partnered hotels with operational support to deliver a better experience including training and maintenance, and end-to-end technology to manage and sell inventory,"said Adarsh Manpuria, co-founder and chief executive officer of FabHotels.

The company, which charges a fee of around 20% of the partner hotel’s monthly revenue, currently earns close to $2 million per month.

Founded by Manpuria and Vaibhav Aggarwal in 2014, FabHotels aims to grow larger than existing full-stack model based budget hotel brands — LemonTree and Ginger, that own and manage their hotels.

Lemon Tree Hotels Ltd, backed by Dutch pension fund APG and global private equity fund Warburg Pincus, and Ginger Hotels, owned by Indian Hotels Company Ltd (part of the Tata Group), each own and manage an inventory of more than 3,000 rooms, according to reports available on their websites.

“Business models in many industries are undergoing changes including the hotel (industry). Even though franchising is not a new concept, but it allows easier and faster scaling," said Jaideep Ghosh, partner and head, transport and leisure, at KPMG.

“These (franchise based) companies don’t have to make heavy investments into owning assets (unlike the full stack hotels)", he added.

According to Manpuria, more than 100,000 guests have stayed at FabHotels since it started, paying an average of 2,000 per night and staying for two to three nights.

Having partnered with 250 corporates, the company works in both — the business-to-business (B2B) and business-to-consumer (B2C) segments. Users can book rooms through the company website, call center, online travel agents such as MakeMyTrip, or reach out to offline travel agents.

FabHotels, operated by Casa2 Stays Pvt Ltd, receives more than 80% bookings from business travellers, mostly between 25 and 45 years old, who travel for meetings, projects or training, Manpuria said, adding that over 50% bookings come from repeat customers.

“(The) majority of our customers are repeat (users). Having stayed with us before, they tend to book a FabHotel for their travel to another city as well," he said.

Ghosh, however, points out certain challenges that companies like FabHotels face.

“When you are a franchise and not the owner of the hotel, the brand (FabHotels) needs to make sure that quality of service remains the same across all its hotels, the staff is well trained and all other aspects of quality service are intact."

Backed by Accel Partners, RB Investments, Mohandas Pai’s Aarin Capital and Qualcomm Ventures, FabHotels raised $8 million in Series A round of funding in June, after raising $2.25 million as seed money in July 2015.

According to data provided by Traxcn, a start-up tracker, the budget hotel market in India has attracted total funding of $282.4 million so far across nine companies and 23 deals since 2013. These companies typically operate on an asset-light model and aggregate hotels by partnering with them.

In comparison, China’s largest budget hotel chains, Home Inns, China Lodging and 7 Days Inn, were founded in the early 2000s. As per Traxcn, these companies went public, whereby their cumulative market capitalization crossed $4 billion in 2015, and each has grown to manage more than 2,500 hotels, offering room inventories of over 200,000 each.

Softbank-backed OYO Rooms (Oravel Stays Pvt Ltd), that aggregates a certain number of rooms per hotel under its brand name, has also started leasing hotels and guest houses under its programme OYO Flagship, Mint reported in April.

On the other hand, Treebo (Ruptub Solutions Pvt Ltd), operates on a model similar to FabHotels. The company has 125 hotels in 25 cities across the country in its network. Backed by Bertelsmann India Investments (BII), SAIF Partners and Matrix Partners India, the company has raised 150 crore so far up to Series B round of funding.

Mint reported in July, that Treebo plans to expand its footprint to more than 60 cities, and take its inventory from 3,000 to over 12,000 rooms across 450 properties over the next 12 months.

Treebo offers accommodation to travellers in the price range of 1,000-3,000.