RedDoorz CEO on SEA Potential, Performance Marketing Lessons and Rapid Growth
Digitization has accelerated among consumers as well as independent hoteliers
YEOH Siew Hoon interviewed Amit Saberwal, CEO of RedDoorz, the largest technology-driven hotel management and reservation platform in South East Asia at Phocuswright Europe where they spoke about the Southeast Asia region during Covid and how the pandemic has made entrepreneurs like him think differently about customer acquisition, profitability and Fund raising.
Q: Glad to meet you in Fort Lauderdale from Singapore. Why did you take the trouble to make the trip in the midst of a pandemic?
I represent the huge Southeast Asian market which is often overshadowed by India and China. It is a phenomenal opportunity from a tourism and travel perspective. The addressable market is bigger, the hotel supply is available – you need a good deal to start a good business. I also wanted to pay tribute to and remember my good friend and board member Philip Wolf through this event. It would be the first Phocuswright without him.
Q: Yes, Southeast Asia certainly became the region of disruption during Covid. Facebook’s 2021 Digital Consumers Report indicates that 70 million people – the equivalent of the entire UK population – have become digital consumers in the region. And its online retail penetration is expected to grow 85% year-over-year by the end of 2021, and is now higher than that of India or Brazil.
Yes, there was a quick scan. Customers don’t want to meet people anymore, they want smooth experiences, as smooth as possible. What’s interesting is that full digitization is happening in 25-bedroom properties as well – so it’s accelerating on the consumer and supplier side, and it’s paying off for hotel owners. Hotel owners – which were part of the RedDoorz brand – report 15% higher occupancy than similar unbranded products.
Q: It must not have been easy over the past 20 months. I know RedDoorz takes pride in being a “honey badger” (your mascot), and his key characteristic is fearlessness. But you must have been scared at one point during the height of the pandemic in markets like Indonesia, Thailand, and the Philippines – you raised $ 150 million in total (the last round was Series C) and were about to become a unicorn, so there must have been pressure from investors?
Yes it has been a challenge, but we are proud of the fact that we are a definite survivor – we have just been ranked 6e best place to work in Indonesia and there is no travel agency on the list. The company has a soul – our partners, employees, investors, have supported us in the worst times and we have come out much stronger.
I remember early on, all the investors were trying to help us by telling us the bad news until we told them we read the same papers and said ‘execute’, and reassured them, we wouldn’t cut back the growth function – it means technology and business development. And we executed our way out.
Q: What was the secret sauce of the execution?
The main trigger was that we acted very quickly and took decisive action from the start. This included removing minimum guarantees, shutting down Thailand and reducing our workforce by 40%. We are now a lean company.
A positive result is that the competition died out, there was a rationalization. Indonesia and Philippines, our income is higher today than before the pandemic, 96% of our business is domestic there. What happens in Bali, which depends on the foreigner, does not apply to us. Our business in Vietnam has been affected due to the bottlenecks but we remain fully committed to the market. Singapore – we have reduced from 13 to 3 properties – we do not intend to develop the activity in Singapore.
We now have 2,900 properties in four countries – we were 1,600 to 1,700 before the pandemic. We have adopted a multi-brand strategy and increased the offer.
Q: You now have five brands, RedDoorz, your bread and your butter; Urbanview, SANS and Sunerra – which is 3.5 stars, and KoolKost for remote workers – don’t you risk going down the same path that traditional hotel companies have to have so many brands it’s hard for consumers to differentiate yourself and it becomes complex to distribute yourself?
These are all nuances of the same type of budget accommodation. We are technology first, we don’t have a GM on the property, so we don’t have a problem with differentiation. What’s interesting is that during Covid we were afraid that if we shut down Google or Facebook we would lose our business and we had no money to spend. But our customers kept coming back to us directly.
We’ll probably never come back to performance marketing on Facebook or Google. We are a hyperlocal business and have found that brand marketing works well on TV and you need to personalize the offer.
Sunerra – we’re still working on things. We love to experiment and we think the business has a different pace. Our ambition is to be the largest new age hotel company in South East Asia. We don’t want a heavy asset model.
The doubts about Sunerra are scalability – design takes effort and requires multiple owners. We like to be where integration is easy, meeting the needs of the traveling salesperson. There is a fortune to be made at the bottom of the pyramid.
Q: The competition has died down, but new, well-funded competitors are entering the market: Yanolja, the South Korean hospitality giant, which has just raised $ 1.7 billion and VN LIFE in Vietnam which has raised $ 250 million, will invest part of these funds in VN Travel.
Each region would have a hyperlocal player who would win. Yanolja did a great job but in a different market. It’s a huge opportunity for many players.
The way I see the evolution of the hospitality industry – Hospitality 1.0 – Taj owns and manages properties; Hospitality 2.0 – Marriott operates other properties. Hospitality 3.0 who is us – using technology to manage other businesses and assets, the way Airbnb uses technology to manage other people’s assets.
Q: What was the best technology investment you have made?
The best investments made have been to improve our algorithms around the sufficiency of supply, corresponding to what customers are asking for in this square foot area, improved by leaps and bounds – hyper-localized recommendations. In our market, one side of the street versus the other can mean a 20 minute difference in travel time.
Q: You were MakeMyTrip employee # 28 – and I think when you started RedDoorz it was called something else, you started in India. Why didn’t you stay to face India?
India is like an elephant that threatens to dance but never dances but has recently started dancing. We focus on South East Asia.
Yes, when we started we had a B2B product but we learned that in India you can donate the technology but if they don’t have the capacity or the intent or the bandwidth to do it you are stuck.
Q: What does domination in Southeast Asia look like?
15 to 20,000 real hotels under our brand. Empty hotels are like empty calories, they don’t make sense. Each hotel must earn a certain amount of money each month.
Q: You have declared your ambition to be a unicorn, what is left?
The Covid has delayed us by two years. Our income profile is much better. Every dollar that is made on the core business, we make 50 cents on the auxiliaries, it was zero before the pandemic. Our participation rate is over 20%. We make more money on half of the overnight stays today.
Q: It’s interesting how some companies that were previously looking for unprofitable growth are now profitable. Eric Gnock Fah from Klook spoke to WiT and explained how they are now profitable in markets like Hong Kong and Taiwan.
Yes, profitability is a choice for us now and it is a powerful position for us. RedDoorz’s revenue profile is so much more sustainable. In pursuit of unprofitable growth – including us – those days are over. Covid was a wake-up call and we were made to grow up fast.
Now the new metric for the business is MIB – Money In Bank.
Q: What was the old metric?
ORM – Nights in an occupied room. There are so many ways to present income. It’s time to cut the bulls …
Q: When is the IPO?
2023-24 maybe, and I don’t see it as the exit but the starting point for RedDoorz. It is an event in a long journey.
Q: There’s a lot of talk about super apps in Southeast Asia and fintech. Are you interested in any of these areas?
I think the story of the superapp is not as straightforward as it claims it is. Portfolios, I think you have to think about core vs. non-core in every business. If you approach the kernel well, everything will fall into place.
If I have to raise a billion dollars, then I have to create a story. What we want is to create value. Not everything can be solved with money. If that was the case, Google would handle everything.
We will focus on what we are doing and continue to perform. And maybe we’ll fundraise next year.