If you missed the webinar with LOKAL's Co-Founders, Khurram Kidwai, Asim Kidwai and Umar Malik, we’ve summarised some vital information about LOKAL in a Q&A session with the team.
1. To create a standardised experience it starts from entering the hotel and the reception, is this paid for by LOKAL or the budget hotel partner?
LOKAL: This is a combination of two things: the first and most important thing is the service. We are not only talking about improving the rooms but also training the staff. Our experienced team that runs from HQ, on-the-ground Journey Captain and continuous training sessions are going on whether they have a ground training session or their online classroom sessions. We do not do this just for specific LOKAL rooms in the hotel, but for the entire staff.
From housekeeping to security, each and every step is covered through our own standards and SOPs.
As far as the actual condition of the reception, what we ensure is complete cleanliness and that things are in order as that is the first thing a customer looks at.
2. Are those your staff or the staff of the facility?
LOKAL: So the staff is paid for by the facility. However, the Journey Captain and the experienced team at the headquarters is under LOKAL’s headcount. It is a classic operating model. The payroll of the staff is on the hotel owner's spreadsheet but the Journey Captain of the facility is employed by us so we act as operating managers in a way.
3. What is the split of revenue between international and domestic tourism?
LOKAL: In Pakistan, it is 90% domestic tourism and this number has stayed the same over the last five years and is expected to continue going forward for two reasons.
Firstly, there is a huge appetite within the local population of 20 million people within Pakistan.
Secondly, if you compare this with developed tourist markets, the ratio is 70:30 where 70 is local and 30 is international. Pakistan still has a way to get this.
Therefore, focus has been towards boosting local tourism given that they are the core nugget of what we do and we don’t think this is going to change.
4. Have you seen any impact on your business from the sad events of the flooding in Pakistan?
LOKAL: Absolutely, I think overall we have seen a big impact in terms of different industries. But if we are to talk about the tourism industry, there was just a momentary pause in recreational tourism but corporate tourism still continued.
But now this is coming back on and we are seeing extended stays because people who were initially planning to travel last month are now shifting the plans to this month to what we see is the next 60 days till the northern season is on.
And also just from an impact point of view to LOKAL, other than Swat, none of the flooding were the areas where we were operating, because this was usually the rural areas and Southern parts of Pakistan and Balochistan which are not very popular tourist markets to begin with.
The market in Pakistan is seasonal and therefore our overall play is to capture the corporate business market. Within 90% of domestic tourism, 50% is from corporate business.
The essential goal of being in cities that are in the south such as Karachi and Lahore is to be able to serve and operate the different types of customers in these areas, therefore we have a diversified model that does not just cater to tourists but also to corporate professionals.
5. I understand that you can furnish and decorate rooms at a good quality but can you please explain how you will maintain service? You mentioned a Tech platform but eventually it will have to be humans that you will need to execute this service.
LOKAL: We have a well-developed tech stack that operates between three main models: the Command Panel at LOKAL HQ, the Hotel Management System and the Journey Management App.
Our Command Panel runs from our head office in Karachi and is connected to each of our partner hotels the Hotel Management System that is operated through the operations of the hotel itself and has entire control of all the bookings in the hotels (including bookings, hotels, restaurants, housekeeping, etc.). Every time a LOKAL customer goes into the hotel, we are able to manage and take control of their entire journey at the hotel.
Our on-the-ground Journey Specialist who we connect to through our Journey Management App, which was created to support the journey management specialist and make sure that every single room which goes to every single customer is at the same standard that we created when we first developed the room.
This journey management app contains a checklist which has 60 to 70 points that the journey management specialist has to use every time a room is cleaned. Once a room is clean, the specialist is going to take these 60-70 pictures and upload them on the journey management app.
Once they upload them on the app, we will be able to see it all here on the command panel at the head office where the experienced team is monitoring these rooms 24X7 and they are also able to see and verify that every single point and this room is up to the mark before a customer is able to check-in.
Currently, we are doing this manually, but eventually the plan is to move this to AI, once we scale in standard.
6. Is the Journey Captain responsible for all visitors or just for the LOKAL visitors to the Hotel?
LOKAL: The Journey Captain is a general manager to the hotel and his main responsibility is to manage the service of the hotel completely.
However, to our personal LOKAL customers, he acts as a personalised service manager to ensure that each specific need is fulfilled. The journey captain is also backed by a 24x7 mechanism that runs through our online communication channels to which any customer can directly reach out to us for any problems.
7. Does each PHP have to have the basics in place? (i.e, air conditioning, security, breakfast, TV and Wi-Fi) because the PHPs that you guys select are very specific?
LOKAL: We have five promises that were curated based on countless interviews and searches to determine the needs of the budget traveller.
The first is security which is one of the primary reasons as to why Airbnb did not work in India, where private home owners do not look at security as a major point but is a basic attribute of commercial hotels.
And then we have other basic facilities like (2) clean bathroom and bedding, (3) Wi-Fi, which is the need of a modern traveller, (4) air conditioners, depending on which part of the country we are in and (5) complimentary breakfast is one of the main key features that stood out in the budget traveller.
We make sure that all these promises are part of every room that we operate in. These are included in the checkpoints that we look at (which includes almost 20 points) while curating all this information, including ensuring that the rest of the facilities are up to the mark, and taking a thorough look at the profile of the hotel owners.
8. Is LOKAL profitable at the moment?
LOKAL: Yes, we broke-even last month. One of our key priorities from the start was to make sure that we’re growing in a sustainable way and thankfully, that is where this industry is heading to.
And in 9 months since our inception, we started breaking even, which probably is a record for many start-ups in Pakistan.
9. What is the average price of refurbishing a room? And how does that translate into the margins?
LOKAL: The average cost of refurbishment is around US$2000 to US$2500 depending on the initial condition.
An important point to note here is that this is not on our expense sheet as this is an advance given to the hotel and is recovered through our revenue share. This is a cash flow item for us and we do not bill it in our P&L.
When we onboard and sign with a hotel, we give them this amount as a turnover facility to run the cash.
We’re operating at good occupancies, but assuming the market rate of occupancy, it would take the hotel around 4 to 5 months to recover the initial investment in one room.
10. Who are your competitors and how do you differ from them like from Airbnb and Booking.com and some of the other big players?
LOKAL: Booking.com is an online travel agency. They are basically just a booking platform and do not guarantee the condition of the room. We are not a booking platform, but definitely we are a product where we ensure that no matter which room you book, it meets a standard quality. Unlike a booking platform, we deliver the entire end-to-end journey, a great booking experience and a great staying experience.
In terms of Airbnb, Airbnb does not guarantee the quality of the accommodation. Particularly in markets where security is a big question mark, and this is where consumers are really scared of stepping into someone else’s home without knowing anything and the fact that we are able to do this in commercial buildings that are already there with all the built in security and having all the protocols in place, LOKAL itself becomes a brand that people start trusting.
In this space, there are hardly any players within our budget and therefore we have the first mover advantage. On the hotel side, we have Marriott and other big players that are priced at $200/night while we are priced at $50/night where no real market players are playing.
So we pick up these local un-branded hotels and connect them together in a network and the movement starts happening circularly and therefore we are able to give competition to the big boys that spend a lot on marketing.
11. How high are the barriers to entry? And what is stopping anyone else from entering into this market? Is there any secret sauce that differentiates you?
LOKAL: The biggest barrier is the tech that goes behind servicing. Our tech stack is well developed, not just within Pakistan but at a global standard. When we look at competition across the border, it is something that other players lack.
We have a 43% return rate within the last 6 to 7 months, which demonstrates the trust and loyalty of our consumers.
The other barrier to entry is the refurbishment of the rooms. We work closely with an urban development company which has been in the construction line for the last 30 years so we have a lot of expertise and ability to refurbish rooms at minimum cost. This is the strength that we have.
12. What are the risks that will affect LOKAL going forward ?
LOKAL: Maintaining service is one of the major risks that we face struggle with is to ensure consistency of service. India's OYO faces the same issue.We need to ensure that we have a deep eye on how the servicing is done. Currently, we are averaging a rating of 8.5 out of 10 whereas other budget hotels have a rating of around 5.
13. How long does it take to recover the initial investment of $2000?
LOKAL: Our rooms are operating at good occupancies, but assuming the market rate of occupancy, it would take the hotel around 4 to 5 months to recover the initial investment in one room.
14. Regarding hotels defaulting, is there some sort of legal agreement that you have that will reduce this risk?
LOKAL: We have a very solid, thorough proof of contract that we do with these Hotel owners
We take into consideration multiple scenarios, while ensuring the arrangement benefits them as well. We also perform extensive due diligence of these owners.
15. With regards to the risk of global recession, how is this potentially mitigated and what kind of currency risks do you guys face?
LOKAL: From a business point of view, the devaluation has actually been helpful for us because there is a higher demand for domestic travel, over international tourism which is very expensive now. This has helped domestic tourism to explode and therefore boost our business.
From an investment angle, if you look at Pakistan’s capital risk, it has been around 5% devaluation for the last 10 years and unless we’re able to re-service the debt, this will increase to around 10%.
16. In terms of ongoing need for refurbishment, how often do you need to bear the cost of refurbishment?
LOKAL: Refurbishment of the rooms is up to the hotel owners. We manage it whenever we need the maintenance to be done.
As per the contract, it is the hotel’s responsibility to ensure that they are done within the given time frame that was agreed to in our contract.
17. Where are you going to use the entire investment that you are raising?
LOKAL: As we have started to break even, all of the funding will go towards growth.
80% will be spent on increasing supply. Our target for the USD500k is to increase at least 200 to 250 rooms. We will invest the remaining 20% to strengthen the technology and integrations, as well as strengthen our team.
18. What is your next target after your second raise?
LOKAL: Our next target is to reach 2000 rooms, and we want to achieve this within the next 24 to 30 Months.
19. At what point do you see potential exit for investors and what is your overall exit strategy?
LOKAL: We are in it for the long haul for the next 10 years. We can continue building and growth can keep coming in, expanding both vertically and horizontally.
Pakistan tourism is expected to be a $30 billion industry by 2030. And if we expand to some of the cities we are targeting, this number will go above $400 billion. So the market is very huge for us with an expected 40% gross margin. Ultimately, we want to take LOKAL global. We forecast multiple fundraising rounds. Our end goal is an IPO, but there will also be many rounds through which you can exit.
20. Have you considered revenues by having partnerships with restaurants and other operators?
LOKAL: Airline ticketing, car rentals and transportation are also a good source of revenue and the idea is to integrate these services into the LOKAL brand.
21. How much would our shares be devalued in future fundraising rounds?
LOKAL: The shares will be diluted in proportion to the valuation of the company.
22. What is the LOKAL flagship?
LOKAL: The Flagship is a future concept where like-minded people can come together in a LOKAL space where we will have rooms, member clubs, coworking spaces, exhibitions, events and food halls.
23. Regarding the valuation of 10 million, what is your basis for having this valuation?
LOKAL: It’s based on a market comparison of similar hospitality businesses. Using Cash Flow, EBITDA and Turnover, the minimum valuation comes out to be around $25 million with the average valuation around $67 million. The initial raise that we are planning to do is very small because we just want to focus on the immediate growth.
