SYMBIOSIS INSTITUTE OF MANAGEMENT STUDIES (SIMS)

(CONSTITUENT OF SYMBIOSIS INTERNATIONAL UNIVERSITY)

ENTREPRENEURSHIP
Masters of Business Administration 2015 17

FIRST INTERNAL EVALUATION

Case Study : Zostel

Submitted To:
Dr. Amit Kumar

Submitted By:
Ajinkya Thorat D-05

Shashi Kumar D-49

Vikant Jagdale D-59

What Is Zostel??

Indias first of a kind accommodation for young travellers which offers pocket friendly, secure
and centrally located hostels. They want to give a solution for finding clean, friendly and cheap
accommodation which would be pioneer in providing a place to crash which would be hip,
fun and luxury. Zostel was formed by 4 students of IIM Calcutta, 2 students of IIT-BHU and 1
from MDI Gurgaon.

Trends observed by the entrepreneur before venturing in the opportunity

In the movie queen when Rani is rejected by her to be husband just two days before marriage
she then heads to her honeymoon without her to be husband she heads to Paris first where
she stays with a single mom and later she goes to Amsterdam where she stays in a mixed
dorm with three men coming from different parts of the world. A concept like this is unheard
of in India but here in India seven friends came together with similar idea to popularise this
concept in India and it was called Zostel

To set up this facility they choose Rajasthan land of palaces, lakes and maharajas to set up
their initial facilities. They knew that India lacked clean, hygienic accommodation for backers
and travellers which had reasonable prices which are common in Europe. So graduates of IIT
Bombay and IIM Calcutta came together with a solution for this which is called Zostel. If one
travels outside India hotels are very expensive and most of the travellers stay in Hostels. But
when we talk about India there are not many Budget hotels which are hygienic mostly
premium hotels provide better cleanliness.

Problems identified by the entrepreneur before venturing in the opportunity

Tourists now use travel websites to book rooms in advance, floating around the hotel is no
longer needed when they have to go and explore a new place. Additionally, during a trip which
takes place suddenly without any prior notice it is safe to go on suddenly just by booking
online one minute prior to leaving . Tourists- technology start-up companies in both the hotel
and travel industry are engaged in redevelopment. These start-ups in hotels and guest houses
create a network of Hostels, with the help of start-ups small hotels are being benefitted as
occupancy of the premises is increasing due to bring the small players online and giving them
a platform, the tourist does not always include families or group of friends it also includes
people who map places other than those where people have been who travel alone or in small
groups for them to get a safe haven at less cost is an issue.

Hostels are not a well-known choice for stay in India so they main problem with Zostel was to
spread awareness about these concept. Mostly Cheap and budget rooms in India do not meet
hygiene standards of most travellers. They do not contain basic amenities and security which
are commonly found everywhere else. People have misinformed information about hostels
in India. So there has to be a social media campaign to dispel myths and make people aware
about this concept.
Travelling outside India gave the entrepreneurs from Zostel experience to tackle this issues
as they had an idea about the services provided by hostels outside India and kind of
Infrastructure they provide. So the main Challenge was to meet the basic Standards of
Security affordability and cleanliness. At the same time they have to be welcoming and
comfortable to the guests staying with them.

One such start-up is Zostel which is offering passengers branded hotel chain. However, since
starting operations in 2013, nothing has so far changed as 90 percent of its customers were
international travellers who stayed in Dormitory. Pawan Nanda Zostel-founder has said that
India has not picked up pace in the social travel yet and it will gradually change, when people
with co-travellers and meet new people show more openness." By then Zostel Bangalore,
Mumbai, Jaipur and Pune have chosen 50 hotels under a new category of budget hotels for
co-branding. Zostel is trying to create technology-based networks, where users can find the
app on the nearby room.

For Indian families it is still unfamiliar to stay at budget hotel in an unfamiliar area. Without
good reviews of Travel review websites and their recommendations Indian travellers do not
stay with their families in hotels they are usually unaware of.

Ginger hotel is a hotel of the Taj group's initial budget category. Start-ups like Oyo rooms and
Zostel and also works on the principle of budget stay, but they do not keep your property or
run it, instead Aggregate or run through co-branding work.

Any property Zostel acquires it takes two months to reach the break-even. These hotels are
listed on websites or apps occupancy rate is between 70-80 per cent, which is higher than the
industry average of 57 per cent. Consultancy firm Cushman & Wakefield report, 52,000 hotel
rooms in India between 2013 and 2017 is expected to grow. These mid-tier hotel will have 36
per cent, while 17 per cent of the budget hotels will

Gaps Zostel is trying to Solve

Hospitality space in India lacks a brand in budget price segment in which Zostel is operating
in. For Rs 500 in India its difficult to find accommodation which would provide essential things
like security, Hygiene and location. Another aspect is that of meeting new people which is a
concept which not in India. They want to change how travellers travel in India as they would
not need to think about accommodation and can focus their finances more on experience
based activities. As they are spending less on stay they can use that money some where else.

We can see that there is gap between customer expectations of the Quality of service being
provided and the perception which the management of various budget hotel across India
have about expectation of customers. Hotel administrators may think that guests are more
concerned with better food or facilities but guests maybe thinking about some other factor
like cleanliness or the responsiveness of the staff.

Personal Characteristics of the entrepreneur

Zostel has a group of seven entrepreneurs from a varied and diverse background. Zostel was
started by Dharamveer Singh Chouhan, Chetan Singh Chouhan, Abhishek Bhutra, Siddharth
Janghu, Tarun Tiwari, Paavan Nanda and Akhil Malik in August 2013. They all have a very rich
pedigree. While a few of them are IIM Calcutta passouts, others are IIT BHU and MDI Gurgaon
passouts.

Dharamveer Singh Chouhan completed engineering in ceramic sciences and engineering from
Indian Institute of Technology (BHU), Varanasi in 20008-2012. He joined Indian Institute of
Management Calcutta in 2012 and passed out in 2014. Dharamveer did a short stint of 3
months in Zynga as a Game Designer as well as SenoCAD Research Gmbh as a software
engineer.

Dharamveer considers/ Bill Gates and Narendra Modi as his influencers. Though he believe
his major influencer was his grand father who himself was an entrepreneur. He opted out of
his college placements to make Zostel big. Dharamveer was a motivated person from the start
when his dream was to enter into the gaming industry because of which he interned with
Zynga but shortly he realised that India is not the right place if one want to work in gaming.

Dharamveer being an avid gamer tried his luck in gambling as well, slowly honing his skills he
went on to make $10,000 one fine lucky day, which actually game him the capital to start his
idea of zostel. He shared his idea with his close friends who later co-founded Zostel with him
and later on Zo-Rooms as well.

Other Co-founders came from similarly rich pedigree of IIMs, IITs and MDI having a varied
experience in different background from IT to Financial Services etc.
Porters Five forces model

Existing Competition: Competition of Zostel are internationally renowned AirBNB, booming

Indian startup OYO rooms, branded names like Ginger and others as well as local players in
the hospitality segment.

Threats of new Entrants: The threat of new entrants is low to moderate since this is a capital
intensive asset heavy business to get into.

Bargaining power of suppliers: The basic suppliers as such would be the real estate needed
for the expansion of Zostel. Zostel needs large real estate space which is often in very high
demand and hence the bargaining power of suppliers is quite high.

Bargaining power of Buyers: The hospitality sector is seeing a lot of competition and with the
advent of rooms aggregators even more so. Though Zostel caters to backpackers and price
sensitive customers ready to share rooms for cheaper accomodations. New age room
aggregators provide rooms at very competitive price and hence gives the Buyers high
bargaining power.

Threat of Substitutes: Threat of substitute is quite high as there is not very high loyalty among
Zostel customers to the brand and the major reason they are sticking with Zostel is their
competitive pricing and not large competition in backpackers accommodations.

Value delivered to various stakeholders

Zostel is providing all the stakehoders with a large value as they make cheaper real estates at
tourist places into backpacking accomodations making them worth quite a lot. Zostel has
been building a good brand name in a niche market and providing high value to all employees
and related stakeholders. Since the idea is of sharing rooms it is providing accomodations at
quite a discount to other accomodations creating a lot of value to customers. Not only Zostel
gives value to low prices accomodations, it also gives higher value due to high aesthetics that
the accomodations provide. Overall Zostel is delivering high value to its stakeholders and that
is the secret to its success.
Turn it In Report