COCO, FOCO, AND FOFO: WHAT'S THE RIGHT PICK?

Choosing the business model will largely depend on the capital available, growth trajectory, development stage, and brand name

- ABHAY VOHRA

COVID-19 put several businesses across verticals in a tailspin. Amongst these, the hospitality industry has been one of the worst-hit, particularly at the outset of the crisis.

Towards the latter half of 2020, the industry moved swiftly to mitigate the impact on business by reducing costs, pivoting to digital platforms, and overall recalibrating their business models to adapt to the current scenario. However, the impact and devastation the pandemic has left in its wake are sizeable and likely to be long-lasting.

While hotels and operators are yet to make a full recovery from the plummeting economy, the pandemic’s second wave brought new challenges to the fore. For instance, OYO Hotels and Homes, which was valued at $9 billion after a fresh infusion of capital, faced a petition filed by a creditor who initiated insolvency proceedings against the organisation.

Later the Delhi High Court had ordered that issue had been resolved as the petitioner specifically stated the same and thus withdrew the petition. Such cases set poor precedence of coercing startups, regardless of whether they are unicorns or not, into paying a debt.

Now, the million-dollar question is, what is the ideal business model that industry players can adopt and what is the way forward? Before we delve into the answer, one needs to gain an understanding of the three main franchise business models present in the hospitality and real estate segments.

UNDERSTANDING THE BASICS

Company Owned Company Operated (COCO), Franchise Owned Company Operated (FOCO), and Franchise Owned Franchise Operated (FOFO) are the three main business models. In the COCO model, companies often take long-term leases of the property and operate it since purchasing is often not feasible.