While many players in Indonesia's hospitality industry were paralysed by the 70-90% declines in occupancy that COVID brought about, leading tech-enabled hotel player Bobobox immediately began to deep dive into behavioural shifts amongst its largely Millenial customer base. In addition to acting on obvious insights such as improved cleanliness and hygiene, the Bobobox team also seized on the growing imperative to work remotely, rolling out its wildly successful Bobocabin and Bobovan products. Company CEO Indra Gunawan also addresses topics including competition, the advantages of the capsule hotel model, and the mission-criticality of technology.
While many players in Indonesia's hospitality industry were paralysed by the 70-90% declines in occupancy that COVID brought about, leading tech-enabled hotel player Bobobox immediately began to deep dive into behavioural shifts amongst its largely Millenial customer base. In addition to acting on obvious insights such as improved cleanliness and hygiene, the Bobobox team also seized on the growing imperative to work remotely, rolling out its wildly successful Bobocabin and Bobovan products. Company CEO Indra Gunawan also addresses topics including competition, the advantages of the capsule hotel model, and the mission-criticality of technology.
ALAN 0:11
Welcome to the 31st episode of Season Two of the Indo Tekno podcast. Selamat datang semuanya. I'm Alan Hellawell, founder of tech consultancy Gizmo Advisors and Venture Partner at Alpha JWC Ventures. Some of the most inspirational innovation that I have seen in the broader Indonesian technology ecosystem since the onset of the pandemic has happened in the hospitality vertical. Faced with a truly existential, life-and-death set of blows to their prevailing business models, only the nimble have been able to survive and pivot themselves to a better place. Leading tech-enabled capsule hotel chain Bobobox has taken a number of innovative steps to accommodate and even exploit the unique challenges that have arisen since early-2020. We are extremely pleased to have Bobobox CEO Indra Gunawan join us for today's episode to discuss the company's journey since being founded at the end of 2017. Indra, welcome to the show.
INDRA GUNAWAN 1:11
Hi, Alan. Thank you for having me.
ALAN 1:14
You're very welcome. So Indra, you and your co founder Anton Bong set up shop in Bandung. What is your connection to Bandung?
INDRA GUNAWAN 1:23
That is right. I basically come from Bandung. I was born and raised in Bandung. And we believe that Bandung has similar characteristics to many other cities in Indonesia outside Jakarta. And we feel that testing our product in Bandung can benefit us to find the right product market fit for the Indonesian market.
ALAN 1:44
A true native son. So Indra, how is Bandung a different environment for startups compared to Jakarta?
INDRA GUNAWAN 1:51
So first of all, in terms of the pool of talent itself, I would say Bandung has an advantage because we are located in a city that has many great universities like ITB (Institut Teknologi Bandung). So there's a large pool of talent over there. And in terms of the competition, it is not as competitive as the Jakarta market. So we have higher chance to retain some of the best talents that we have here. And also, I would say that Bandung, being a cooler climate, is a much better environment. It is a much more inspiring and environment for our team to develop our products.
ALAN 2:31
And is there more of a Silicon Valley vibe, a California West Coast vibe in Bandung compared to Jakarta, which I assume is a much more bustling business-oriented city?
INDRA GUNAWAN 2:43
Yeah, you can put it that way, because Bandung is a student's city, and has a much cooler climate. And startups are definitely growing very significantly here in Bandung. And there is a high sense of entrepreneurship here. And there's a lot of creative communities and people over here.
ALAN 3:02
That's fantastic. I'm absolutely fascinated with the city. And so I appreciate the colour. Now, Indra I originally became aware of the capsule hotel idea from Japan. I read that they first debuted in Japan in the year 1979. They were cost effective and convenient, particularly in Japan's densely populated and expensive cities. What of this business model has Bobobox grafted into Indonesia? And then what parts of the model have you modified?
INDRA GUNAWAN 3:32
Alan, what we've come to realise is that digital transformation has made the world move a lot faster. And we found that high mobility and travelling have become a lifestyle. Access to sleep is not only a hassle, but it's almost impossible, because finding affordable and comfortable and secure accommodation is nearly impossible. So here we deep dive into the budget accommodation solutions in the market. And we found that in the past three-to-five years, capsule hotels have been growing very fast in many parts of the world. And just like you said, the capsule hotel was first invented in 1979. So this fact was kinda intriguing, because the questions that we asked ourselves: "Why is it not growing fast in the 90s or in the early 2,000's?" And the answer to that is because the demand for low cost accommodation has been growing significantly only in the past two-to-three years. And so what we did, we spent six months trying many different capsule hotels. We tried the ones in Japan, China, Singapore, Amsterdam and New York City. And we kind of picked up all the best parts of every capsule hotel. And what we've come to realise as well is that the traditional capsule hotels that we typically find in the market cannot cater to the mass market; people who are used to staying in two-to-three star hotels. So we kind of tweaked the design in a way that it is a much more spacious sleeping pod that can deliver comfort and security while still being affordable. So also on top of that, we find that technology can enable us to enhance the user experience, as well as the operational excellence. So we kind of tweak the traditional capsule hotel design into what we call the Bobobox sleeping pod today.
ALAN 5:34
Understood. So let's dive a little deeper into the technological angle. We indeed refer to ourselves as being the "first and largest tech-enabled sleeping experience ecosystem in Indonesia". It's a mouthful. Where exactly does technology play the most important role in the Bobobox story?
INDRA GUNAWAN 5:55
We find that 95% of the hotel operators in the market in Indonesia are still adopting a third party platform. That's when we saw the opportunity. Because in looking at how people are adapting and using smartphones today, we believe that technology can enhance and speed up the whole experience in the hospitality sector. And we believe this will allow us to operate a lot more seamlessly and a lot more efficiently. So, developing technology and integrating the technology into our sleeping pods give us a better transparency in terms of the hotel performance. And also this technology allows our users to have a seamless check-in and check-out without having to go through all the hassle of conventional processes. So this then enables us to get to know our users better as well, because then we can look at their user behaviours and preferences, Alan.
ALAN 6:58
Makes eminent sense. Now Indra, can you give us a sense of how large our network of rooms is? And where are most of our properties located in Indonesia?
INDRA GUNAWAN 7:09
Now, we are strategically located across 17 locations in Indonesia, in five cities, and we have close to 1,000 rooms as we speak today.
ALAN 7:21
Wow, that is a massive span since I last caught up with you guys in Bandung. So Indra, what are our targets for instance by the end of 2022?
INDRA GUNAWAN 7:30
So we are targeting to have 60 locations of hotels and 60 locations of cabins across Indonesia. We have validated product-market fit, not only for our sleeping pods in the urban cities, but apparently our Bobocabins have been well accepted by the audience as well, Alan. So we are doubling down with Bobocabin expansions as well. And we are targeting another 60 locations for the cabins.
ALAN 8:00
Very impressive diversification there. So how much does it cost to stay in a Bobobox room per night?
INDRA GUNAWAN 8:06
So for the Bobobox sleeping pods for the hotel, we are selling our rooms for $8 to $15 per night, depending on the size of the pod. So the single pod, the single bed pod, we are selling it at $8 to $10. And for the king sized bed that can fit in two adults and one child, we are selling it at $12 to $15, depending on the locations they are at.
ALAN 8:34
Understood. So very much meeting a more budget-conscious customer base, yeah?
INDRA GUNAWAN 8:39
That is right.
ALAN 8:40
So what changes have you had to make to the value proposition in the wake of the pandemic?
INDRA GUNAWAN 8:46
Before COVID, we found that there are three main painpoints that we have to address when we are launching Bobobox. The first is strategic locations. A lot of the better performing hotels are always located at strategic locations. So having a great location is very critical in branding a hospitality business. And then second would be the pricing. So looking into the Indonesian market, affordability is a huge factor as well for our users to decide whether or not they're going to stay with your product. And the last one would be the cleanliness, the standardisation of the whole experience. Ever since COVID, the priorities have kind of shifted. Now cleanliness have become the most important for a lot of our users. So now they start asking a lot more about health protocols and how we make sure that every room is cleaned properly, and sanitised regularly. And also great locations have become the least concern for all these people now since the pandemic. So it's very Important now for us to make sure that we give a kind of safety assurance for our guests. And also making sure that not only the guests are safe, but the people who are on the ground who are running a, the host and cleaners, are also safe and going through the right health protocols, Alan.
ALAN 10:19
So a very clear shift in priorities, which all makes sense. Now, I assume that hotel occupancies have been a real rollercoaster since the beginning of the pandemic. How have they trended from the beginning of 2020 through today?
INDRA GUNAWAN 10:34
In early March, when Pak Jokowi the President announced that we had two positive cases in Indonesia, we all can see that occupancy rates have declined rapidly. In many parts of Indonesia, a lot of hotel operators were having low double digit occupancy rates, some even have single digit occupancy rates. And as for Bobobox, our occupancy rate dropped by 70% during the early stage of the pandemic. And also at the same time, the fasting month of Ramadan happened in April. So it exacerbates the whole situation. But surprisingly, as soon as the lockdown was lifted in May, we could see that the occupancy rate has been bouncing back rapidly as well, much faster than we expected. So before the last lockdown that we had last month, our occupancy rate is already back to 70% to 80%. We have several locations, especially in Jakarta, already back to 80%. That is actually our pre-COVID occupancy rate, Alan
ALAN 11:41
Understood. So I believe that more than 90% of our customers are millennials. How specifically are they different from older customers?
INDRA GUNAWAN 11:51
There are several key takeaways that we find. We find that millennials have more positive consumer sentiments towards travel, despite COVID-19; whereas our older customers tend to stay at home throughout the pandemic. So we are quite surprised to see that we have more than 40% returning users during the pandemic. And 95% of them are millennials or younger, from 18 to 35 years old. And also these millennials not only keep on staying in our facilities, we also see that they've been travelling across Indonesia as well. So we're looking at a growing domestic travel market in Indonesia. And apparently there is a bias towards travelling by car. So this is pretty interesting. And also on the other hand, we see that millennials are adopting to the new normal. I would say it's a new lifestyle. We've seen quite a big shift in the duration of their stays as well. So, what used to be a one or two night stay. now we've seen some of our guests have been staying with us for weeks and even for months. And the main reason behind it is because now people can work remotely. And also we find that now people prefer to stay closer to their workplaces. So these two big categories of people have been staying with us in the past couple of months.
ALAN 13:19
That is really fascinating. So the Millennial has evidenced some of the most constructive behaviours now that the pandemic has set in. And I guess we count ourselves very lucky that they happen to be our largest customer base.
INDRA GUNAWAN 13:32
That is right, Alan.
ALAN 13:33
Now Indra our core value proposition, or our product offering, when I began visiting you guys in Bandung more than two and a half years ago, was indeed the original Bobobox capsule. I see we now have branched off into other offerings such as Bobocabin and Bobovan. Can you describe these newer products?
INDRA GUNAWAN 13:52
Alan, like I said earlier, our occupancy rate was severely impacted by the pandemic. We had a 70% decline and a lot of operators as well as other hospitality players decided to wait-and-see until the whole COVID is gone. But what we decided in June last year, rather than waiting until COVID is all behind us, we decided to deep dive into the consumer sentiments and try and to find out what will be the behaviour shifts during this pandemic that will last even after COVID is over. And other than the rising domestic travel market, we also find that this working remotely initiative or behaviour is something that will continue even when COVID is over. A lot of data show that many people would like to have a working remotely option when COVID is over. And also we find that a lot of these guys are already willing to travel within the next one year. And at the same time, we also offer that there is a huge preference for outdoor activities throughout the pandemic. So now people are actively seeking alternative travel destinations that are safe, and that they can spend their quality time with their loved ones. So we see that there are activities like camping, outdoor glamping, and isolated vacations that have become the number one selling amenity in the past six-to-eight months. So we thought it would be a really cool idea, and we believe it can be the real solutions for many people who are already looking to travel, if we were to instal our technology, as well as our modular sleeping experience, but in an outdoor setup. So that's what we did. In February, we launched our first Bobocabin this year. Basically it is a modular, prefabricated cabin the same concept as how we set up our Bobobox sleeping pod. And it is set up in a forest. We launched it in February, and it was sold out right away Alan. And he has been maintaining his 100% occupancy until September this year. And also, based on that high demand, you'll also find that an alternative solution for domestic travel by car can be facilitated by Bobovan. And we see that there are more and more people now travelling across Indonesia throughout the pandemic.
ALAN 16:35
Excellent. Great case studies of "playing the cards that you've been given". Now, Indra, thanks for that background on these new services. What can we expect the revenue breakdown to be across the original Bobobox capsule offering and our other newer products for instance, next year?
INDRA GUNAWAN 16:53
Before COVID, what we were planning is to actually win the Indonesian market and try to dominate, particularly the urban market by doubling down on the capsule expansion. So now looking at the current situation, looking at how well we are selling the cabin, and at a much higher price (we are selling our cabin at 40 to $60 per night) it gives us a much better margin and business model. Hence, we are planning to double down on the expansion of our cabin this year instead of our capsule hotels. While of course we're still expanding our capsules, because in cities that have a faster economy recovery, like Jakarta and some other big cities, we believe Bobohotel will still deliver and facilitate the needs of many frequent travellers. But now, thanks to COVID, we are also able to tap into this Millennial adventurers, where we can help a lot of the more remote areas that are more specifically impacted by COVID so that they can have new tourism in this segment. So we hope we can reimagine tourism in Indonesia through collaborations with some of our products, Bobovan and Bobocabin. So we're gonna see 30% to 40% of our revenues in the next one or two years largely contributed by this new product that we roll out, Alan.
ALAN 18:17
Sounds exciting. Maybe a very basic, 50,000 foot question for the investors in our audience: What are the economic attractions of the Bobobox business model compared to that of a traditional hotel?
INDRA GUNAWAN 18:31
First of all, capex is a very big part of any hospitality business. Most of the hospitality businesses out there are capex intensive. And the way we design our business model, it is a much more affordable capex model. In terms of the investment per room-day, we are 75%, if not 85%, cheaper than the traditional hotels or resorts. So it's a lot more affordable for many investors and property owners or property developers. And also the way we have designed, it is using this space efficiency, as well as modularity and prefabrication. This modular prefabrication allows us to grow as the market grows. It gives a smaller risk for investors to tap into a new market because, unlike conventional hotels where you have to come up with a master plan and be ready to set up 100 to 200 rooms for you to get a good breakeven point, we only need to instal 10 to 20 rooms or 10 to 20 cabins to test the market. And we can always increase the number of rooms as the market grows. With this flexibility, investors can have more options where they want to expand to. Also because of the technology that we are using, it allows us to operate a lot more efficiently. We are running at 70% more efficient operational expenses, because we don't have to have many people on the ground to run the business. And also through our technology, the whole process of checkin-checkout, and the transparency, also saves us a lot of costs. So what used to be a 1:3 room:cleaner ratio now has become 1:12. Subsequently, we are having a much higher EBITDA. For our hotel we are at 35% to 40% EBITDA per location, and our Bobocabin has enabled us to achieve 60% EBITDA. So in a nutshell, it is a business that gives a much faster payback period, compared to the conventional hotel and resorts, Alan.
ALAN 20:42
Crystal clear explanation of advantages there. However, a significant amount of VC and PE money continues to go into other parts of the hospitality industry, such as budget hotel roll-ups, traditional Indonesian kosts and other solutions. How do we compete with these alternatives?
INDRA GUNAWAN 21:01
That's a really great question, Alan. So in making sure that we maintain a good product-market fit, and in making sure that we keep on winning the market; in the hospitality business it's not only about the unit economics or the affordability. There are other factors that we have to take into account to win the market. Yes, affordable pricing is one thing. But then the customer satisfaction is also another important factor for us to look at. For a lot of the hospitality business, other than being able to get the high occupancy rate, another metric that they should look at is the retention rate. How do we make sure that our guests keep on coming back and not try other facilities? So that will be another key metric that we have to look at. And in order for them to keep on returning to our facility, it has to be a very high NPS (net promoter score), that is a "wow" experience, something that they always feel consistently achieved whenever they stay in our facilities. That's very important. And through our technology and prefabrication, we make sure that every guest will have the same standardised experience and cleanliness, so they will not have to have surprises, which is a very big pain point in the hospitality sector at the moment. Like when you book an accommodation through an app or a website, there is a 50-50 chance that you can get a good accommodation or a bad accommodation. So basically, we have eliminated that risk by providing the standardised sleeping pods and cabins. And also, on the other hand, technology is a very big part because a part of this "wow" experience is personalization. Having an integrated technology for every sleeping pod and sleeping cabin that we built allow us to understand our users better and allow us to understand their behaviour better. So these combinations of high Satisfaction Index, establishing a trusted brand, as well as standardised cleanliness, and much better unit economics through space efficiency; this combination can allow us to win the market. So, affordable pricing is one thing but like I said, Alan, there are two to three other factors that we have to take into account.
ALAN 23:24
Understood. Now on an entirely different topic, I've always been impressed that Bobobox solutions involve very eye-catching and unique architecture. What has our secret been there?
INDRA GUNAWAN 23:35
Yes. Another great question, Alan. A lot of the experience that our guests have other than the strategic location and the cleanliness, is how good it looks. Aesthetic is very important. All these millennials always want to find this authentic experience. They always want to capture new memories. So being an "Instagrammable" facility or being a place that is worth a photoshoot is something that will help us to elevate our go-to-market strategies. So in Bobobox sleeping pods or cabins, almost every guest who stays with us will actually take a picture and share it with their friends. So this is another advantage that we have Alan and we know how important it is. And having the coolest look or having the nicest architectural setup is one of the key elements to make all these users keep on creating content so that they can share it to their family and friends.
ALAN 24:34
Understood. Now Indra, what is the singlemost fascinating behaviour that you have discovered in your room guests since founding the company?
INDRA GUNAWAN 24:43
What we've seen is the consumer shift in terms of the duration of the stay, and also how an app can actually allow them to keep on returning to our facility, Alan. Initially we thought that the app or technology that we have built is more for them to have easy access to their room. But as we grow the technology, as we add more features on it, making it more seamless, we see that more and more people are directly booking our rooms via our app. This is fascinating because 80% of the hotel operators out there today depend on many online travel agents to get their traffic. So we are really glad that our repeat guests especially will actually return to our facilities by booking directly through the app. So I would say that in any business today, if we are able to integrate a part or the whole experience of your product using technology, that can give us a lot of advantage. And like I said, personalization is another thing. We see that because of personalization, our guests feel a lot more comfortable staying in our pods, and what used to be one or two night stays; now we see that people been saying it was for weeks and even four months, Alan
ALAN 26:03
Understood. So Indra, how are new users most commonly discovering Bobobox? In other words, what is our biggest customer acquisition channel?
INDRA GUNAWAN 26:13
We've been blessed enough to be viral ever since we launched our first product back in June, 2018. And also the new products that we have rolled out such as Bobocabin have gone even more viral than our sleeping capsules. So social media has been a very big part of our go-to-market strategies. We've been growing organically in the past two years. And that is one of the main platforms where our first users get to know our products. And on top of that, for the first-time users, a lot of them also find us through online travel agents. Because in many online travel sites, we are actually positioned at the top of the page, because of our affordability, and being one of the most highly rated accommodations. So I would say social media such as Instagram and TikTok have been helping us a lot in acquiring new users. And many of our online travel agent partners have also been helping us in exposing customers' reviews as well as our affordable pricing, Alan.
ALAN 27:20
Understood. So Indra, let's talk about our future vision for this segment. Tell us something interesting about the domestic Indonesian traveller, his or her needs, etc. five years from now that might surprise us.
INDRA GUNAWAN 27:34
I believe now we keep on looking at many new behaviours as we speak because of the pandemic. No one really knows how long it's gonna last or how many more variants this pandemic can grow into. So we see that having this long pandemic (it's been more than one year now) I personally believe there are some habits that are already being formed. And there are some lifestyles that are already being formed as well. One of the lifestyles, like working remotely, will be a very big part of anyone's lifestyle in the next three-to-five years. And I believe working remotely will be one of the perks or one of the options that many employees or workers are looking for even after COVID is gone. I would say office hours will no longer be five days a week. It can be two to three days a week. So a lot of them will want to spend more quality time now with their family. A lot of them will want to spend time to allocate for their health, because a lot of people are now more health-aware. So I would say in the next three-to-five years, the domestic market will increase significantly, as people are able to work remotely. There will be new terms like "work-cation", or "isolated vacations" for a lot of them to rest, for them to work but also have quality time together with their families or loved ones. So I would say the domestic market will be a very big contribution to many countries, other than the foreign market. Especially in countries like Indonesia, where a lot of the tourism growth or tourism revenue is contributed by the foreign market. But I believe for the next three-to-five years, we will see that the domestic market will grow significantly. There will be more places to be discovered. Because of this pandemic, there are more-and-more local tourist destinations being discovered and shared by many people.
ALAN 29:35
Understood. So clearly the entirety of the hospitality world really needs to continue to evolve and quite dramatically. Now Indra, looking beyond Indonesia, do we have any international expansion plans?
INDRA GUNAWAN 29:48
Yes, Alan. That's a good question. Ever since we launched our new products, and a lot of people have come to know that we can maintain quite a high utilisation rate throughout the pandemic, we've been getting a lot of interest coming from other countries, neighbouring countries. So we believe that what we have here is not only a solution for the Indonesian market, but we believe we have a global product. And also the consumer sentiment and behaviour towards outdoor activities and working remotely have also grown strongly, not only in Indonesia, but in many parts of the world. So now we have already started our discussions with several parties who are interested and very keen to bring our products to their countries. So we are targeting, as soon as COVID is behind us and borders are opening up, we are very excited to explore the possibility of bringing our products outside Indonesia.
ALAN 30:49
I look forward to plotting that progress. Now Indra, as you know, I've had the pleasure of following the Bobobox story for nearly three years myself. And again, it's been really inspiring to see you guys navigate through this "black swan" event that has been the pandemic. I'm fully expecting to see the company maintain its thought leadership through its incessant innovation, that uniquely Bobobox design mastery and your never-ending imagination around the future of Indo hospitality. Thanks again for joining us.
INDRA GUNAWAN 31:19
Thank you, Alan. It was great chatting with you. Take care and stay safe.
ALAN 31:24
Likewise. We hope our listeners have enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan. Sampai jumpa lagi!