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Technology turned into hotels: Learn everything about the first virtual hotel chain

As a good paisa, Andrés Sarrazola has a nose for business. Only in a year and a half, its chain of economic hotels Ayenda, based on technology, went from having two properties in Medellín under its franchise to 60 throughout the country and became the largest in Colombia by number of accommodations (it offers 1,500 rooms ).

They do not sell luxury, gastronomy or alternative plans. The chain’s promise is direct and clear: good, beautiful and cheap accommodations in Medellín, Bogotá, Pereira, Barranquilla and Cali, at an average cost of 75,000 pesos per person / night. And, in addition, it is multichannel, as it offers reservations through the website, the mobile application and WhatsApp, as well as 24/7 service.

Andrés is not a hotelier. He studied business administration, specialized in digital marketing and, before Ayenda, had six technology companies. Between one and the other he discovered an opportunity: to strengthen the national market of two and three star hotels, through technological tools that guarantee more visibility on the web and, therefore, more sales.

In the first half of the year, its startup received a $ 1.2 million capital injection from Softbank Innovation Fund, part of the powerful Japanese group that has invested in startups such as Rappi. This has allowed them to expand and project for the end of 2019 with a total of 150 properties.

More than 55 percent of the country’s accommodations are independent FACEBOOK

What is legend?

It is a hotel chain that operates under the franchise model. That means that we do not own the properties or, in our particular model, we do not operate them either. We grab a hotel that already exists and transform it into a Legend (we change signs, the reception, the pillows are green, the water is from Legend, shampoo and everything else). We merge the brand and we are the franchisors.

We increase hotel sales dramatically. The hotel that goes with Ayenda is coupled with the rules of the game that we have of quality, use of rates and systems. If the hotel has 30 percent occupancy, in three or four months we raise that occupancy to 80 percent.

When did you open the chain?

We have been a year and a half and we are already the largest hotel chain in Colombia by number of properties.

Before Ayenda, before entering the market as a hotel chain, we developed software known as a PMS (Property Management Software), which allowed the hotel to administer check in, check out, invoices or income.

This system was at the reception of multiple hotels. In fact, we had 300 in Latin America. But we decided to focus on Colombia, change the system and build a hotel chain.

Obviously, the system remains because we give the entire system to the hotels we franchise. No hotel other than Ayenda has our technology.

But why did they become a hotel chain?

It’s curious. We sold the software for $ 50 a month. While it was a simple system to use, hoteliers told us that it seemed expensive.

We wanted to better understand why and we discovered that, in hospitality, there is an income ceiling that corresponds to the number of rooms. There is no way to get from there. Therefore, hoteliers are reluctant to fixed costs, as we were. In addition, we did not increase sales or decrease costs. We were a vitamin and not a medicine.

We understood that the main concern was sales. That’s why they didn’t pay us $ 50, but Expedia was paid $ 1,000 or $ 2,000 a month.

From the point of view of variable costs we had an opportunity, but we did not want to enter as one more travel agency. We wanted to enter with something more disruptive and transformative.

Thus, we made the decision to create a hotel chain, such as Marriott or Dann, but for cheap hotels, with two or three stars, with an average rate of 75,000 pesos. This is the majority of hotels in Colombia: more than 55 percent of the country’s accommodations are independent.

They are cheap hotels, with two or three stars, with an average rate of 75,000 pesos per night. Photo: Legend

What is the work of Ayenda?

We have a software team that is creating solutions all day to have a higher impact on users.

That was the bet that was missing in that category of hotels. If you start thinking about which chain of cheap hotels exists in Colombia, you find that none. Or, if one defines economic as 140,000 pesos a night, we would be ultra-economic because our average is 75,000 pesos a night.

How do they connect with hotels?

We partner with a hotel that already exists. We sign a franchise agreement, in which we take control over most of the decisions from the commercial point of view. That implies that we dictate hotel rates. Every day, we change them more or less six times, we do something similar to what the airlines do.

In addition, we have the power to register the rooms where we want: Booking, Expedia, in travel agencies or groups and we earn a percentage of franchise on hotel sales. Moreover, if the hotelier sells through the reception of the hotel, everything comes to our system and we win over those sales.

But you are a technology company, not tourism…

What we wanted to do was to specialize each one’s work. Hoteliers are very good at providing great service, operating it, keeping it up to date. We specialize in creating a strong brand.

Through technology, we fill the rooms and do marketing. In Medellín we have an advertising alliance with Tostao. We have a fence at the airport. We make an economy to scale with the franchise with which we can arrive.

How do you earn?

So far we have had a growth of 30 percent monthly. Last year we were seven people, now we are 55 on the team and we are hiring 60 more. If we analyze the data of the last month, we have 250,000 nights a year and around 18,000 million pesos annually in hotel sales.

Our income is the percentage of franchise, which ranges between 10 and 5 percent, which we take monthly on hotel sales.

While the company’s turnover is still not so high, the impact we are causing on these properties is. The turnover of the hotels have been growing 30 percent monthly. That has made the world’s largest capital fund, Softbank, invest in us.

How did they start?

10 years ago I had my first venture: a digital marketing agency that was active for 7 years. During that time, my dream was to have a technology product company. And it coincided that most of our clients were travel agencies, tour operators and other companies in the tourism sector.

Therefore, in the company we focus on the problem of small hotels. I naively thought that they did not manage the hotels well because I saw paper and pencil at the reception. But then I understood that the main problem was to generate sales volumes for everyone.

What was your first hotel?

We started with a Medellin hotel called Park 6. We approached and showed them how we could add value. They believed in us, they gave us not one but two hotels and there we began to show sales and results to take this to another level.

What are the advantages of working with low-cost hotels?

In many economic categories we have realized that we can create quality products at a lower and lower cost. Companies like D1, Justo y Bueno, Viva Air or Tostao offer quality products for a large audience. That can only be done with economies of scale and with technology.

We were a technology company from the beginning. So we think about targeting the segment in which most Colombians are from the business point of view, and also, to the segment where most of the hotels in Latin America are. That combination is winning.

What plans do you have for the future?

If we continue to grow at a rate of 30 percent per month, by the end of the year we expect to have approximately 150 hotels within the chain. We want to continue expanding to other cities.

Also published on Medium.

Published inStartups
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