Zostel adopts franchisee model to add 40 hostels

A group of young entrepreneurs taking India’s budget travel market by storm are planning to set up one of their boutique backpacking hostels in Bengaluru in the next couple of months.

It comes after the success the group of seven Kolkata IIM, IIT, and MDU graduates have had with the seven Zostel hostel franchises they have established in cities across India.

Paavan Nanda, one of the business founders, said Zostel stemmed from a brainstorm among friends at the IIM Kolkata campus, as they wanted to create something “innovative and exceptional”.

He said Zostels were places to socialise and meet like-minded travelers. “This model is immensely popular in Europe and South East Asia and that’s where we drove our inspiration from.”In the next few months the Zostel team wants to have pan-India coverage, and as the country’s first and largest brand of backpacker hostels, Nanda thinks the target of 35 hostels in three months is achievable. 

The fact that the hostels all rate number one on Tripadvisor works in the team’s favour.

“Backpacking, which was earlier considered a niche category, is now getting very popular among both Indian as well as international travelers. When we launched, 10 per cent of our guests were of Indian origin but that has increased to 60 per cent over past two years.” 

Each hostel boasts between 70 and 80 beds in air-conditioned mixed and female-only dormitories. Guests have access to free Wi-Fi, common rooms with televisions, playstations and games, and private lockers — all for around Rs 500 a night. 

2,000 from 50 countries

In order to expand their business the team set up a Zostel Entrepreneurship Development Programme, where “ambitious individuals” were given a chance to start their own Zostel.The team received more than 2,000 applications from people in more than 50 countries, and 40 candidates were chosen to start a Zostel in a city of their choice. Of them, 35 will establish a Zostel in an Indian city, and five will start one overseas.

The candidates each have to invest around Rs 20 lakh into their Zostel and Paavan said they were each promised a performance-based seed incentive of Rs 10 lakh.

When the Zostels begin to make a profit, the management team will charge franchisees 20 per cent of profits generated through their online system.

Last year the Zostel team raised Rs 5 crore from Malaysia-based Angel investor Presha Paragash and they took home the winnings from more than 14 start-up competitions.

Paavan said this year the team had “closed two rounds of funding so far and have got some great investors on board.  We closed our Angel round with Sol Primero and Series A with Tiger Global and Orios Venture.”  Nanda said the team was very excited to be entering Bengaluru and was looking forward to giving travelers “the real pulse” of the city.