In the same week it announced raising a pre-Series B round of US$11m funding, Southeast Asia’s leading online budget hotel booking chain, RedDoorz, also made its move into the brick-and-mortar world by leasing and running its first property in Singapore.
The pre-Series B round comes as an additional investment from Asia Investment Fund of Sushquehanna International Group, International Finance Corporation (private investment arm of World Bank Group), InnoVen Capital, Jungle Ventures, who have invested in past rounds – along with new investors DeepSky Capital, FengHe Group and Hendale Capital and other investors.
When I spoke to CEO and co-founder, Amit Saberwal, he was in Ho Chi Minh City on what he said was an exploratory mission. “There’s a lot of domestic travel here,” said the former MakeMyTrip executive before he branched out to start RedDoorz in 2015.
I asked what factors were important before RedDoorz made its move into any market. “Large domestic population and cities with lots of corporate and leisure travel,” he said.
RedDoorz’ playbook is to enter one market at a time, dominate the capital city first, before branching out to other cities. It is now in 17 cities in Indonesia but in the first two years, it stayed in three cities. “We got to know everything about the market first, then started to expand across Indonesia after dominating Jakarta, Bandung and Jogjakarta.”
Similarly with the Philippines, it went into Manila first, did what it needed to to dominate the city, and then expanded to other provinces. It has 50 properties in the Philippines which Saberwal calls an exciting market.
The leased 65-room RedDoorz near Marine Parade, Singapore
In Singapore, it only has four properties and it is clear that given the challenges of adding more inventory to its platform in this expensive real-estate city, it’s decided to take the plunge to lease a 65-room property near Marine Parade in the East Coast neighbourhood.
“We’ve mastered the art of customer acquisition and getting customers for our properties and putting full service delivery teams together. Now we want to experiment – if we move up the value chain, can we build a higher profitability business?” asked Saberwal.
Its move is in line with the continued blending of online and offline that’s happening in ecommerce and to Saberwal, it’s just about solving a real business problem. “We don’t think of it as merging online and offline, we see it as solving real business problems.
“We will experiment with everything possible to build a viable business. If we can achieve 40-50% operating margin, instead of 20-25%, then that becomes attractive, and we can experiment and scale.”
Nevertheless, leasing a physical property takes funds and courage for a company more used to running an online marketplace “but if we are smart about demand, and we know how to run a business, what’s there to be afraid of?”
“If you stop thinking I just want to build a business on tech, but solve a real business problem, you will find yourself at the intersection of offline and online. That’s the reality of it. If companies don’t adapt, then they will lose out.”
RedDoorz in Siglap opened March 1 and is being marketed as “neat, clean, smart, basic – everything works”.
Its 65 rooms will be placed onto the RedDoorz platform, and I asked if it might concern owners who have given their rooms to RedDoorz to sell that its own property might get preferential treatment.
Amit Saberwal: The company’s DNA remains tech-driven
Saberwal said, “All four properties in Singapore are in different areas, and two are hostels. Let the best property win – every property has to work on a particular consumer preference, location and price.”
He said it chose Singapore to experiment with this model “because it is the most expensive real estate and if hospitality owners don’t run a tight ship, they will make a loss. There is room for inefficiency so we have to run a tight ship, and if we are successful at it, we can manage other people’s properties.”
Saberwal said the company’s DNA remains tech-driven. Its new chief product officer is Lalit Mangal, co-founder of Common Floor, an Indian real estate startup that sold for US$200 million.
“We have a solid back engine behind our operations and will continue to invest in tech that tells us how to price, when to price and get maximum yield on the asset.”
The system also allows customers to review hotels, and ratings are then rolled up into a score. “If properties do everything well, they will achieve a level of profitability. If things go wrong, we will send in an operations team to help – we get early warning signals and that helps.”
Saberwal called its move into leasing and running its own hotels a logical next step. “If you can master one side of the equation, which is generating demand, then it’s time to make money.”
Back in 2015 though, he said he would never have envisioned that he would be getting into a real estate play. “We had many assumptions, some of which were proven completely wrong, and what we didn’t expect turned out to be right. We keep solving for the situation in front of us, that’s our way of operating.”
His customers are mainly young domestic travellers with 80% of bookings happening on its Android app. And now it wants the app to go beyond booking and to improve the in-stay experience.
“Customers walk into the property, the app tells staff to be ready for him, he checks in at the RedDoorz hot spot.”
During the stay, through partnerships with local service providers, he will be able to enjoy facilities and services on the app. “Once he’s saved his details, he doesn’t have to register again. One advantage of our business is because of standardization, we have taken decision making from the customer. “We have simplified it. He can say, I need this location – he doesn’t have to think too much about it, doesn’t need to think reviews.”
Saberwal, who said his vision is to have RedDoorz In every relevant street corner, said he was fortunate to have good investors who understood the business. “The outlook is positive for Southeast Asia, all research shows that we are all set for a change.
“People who are traditional managers will be in for a shock. Airbnb launching its Select, what’s happening with us in Southeast Asia, OYO and Treebo in India, Tujia in China – there’s going to a complete realignment of the hospitality business.”
He said, despite it getting into the company’s DNA continues to be tech-driven. “We have AI which predicts pricing for the hotels by the hour, for instance.”
Citing India’s online grocery delivery business, Big Basket, as an example, he said it’s a high tech company on the front end but how they deliver groceries on the back end is hugely driven by logistics.
• Images credit: RedDoorz