h2o hospitality Secures $30M Series C Funding

The Rise of Contactless Hospitality and H2O Hospitality's $30 Million Funding

The recent global pandemic has significantly increased the need for contactless and staffless solutions within the hospitality industry. Consequently, H2O Hospitality, a company specializing in unmanned hotel management, has successfully secured $30 million in a new funding round.

Automating Hotel Operations

Based in South Korea and Japan, H2O Hospitality focuses on automating both front-end and back-end hotel processes. This includes managing accommodation reservations, overseeing room allocation, and handling traditional front desk responsibilities. The newly acquired funds will be utilized to facilitate continued expansion of the company’s operations.

Details of the Series C Funding

This Series C funding round, valued at approximately 34 billion won, was spearheaded by Kakao Investment. Korea Development Bank (KDB), Gorilla Private Equity, Intervest, and NICE Investment also contributed to the round.

The inclusion of Kejora-Intervest Growth Fund, a Southeast Asian joint fund, signals a strategic focus on the Southeast Asian market for H2O Hospitality.

Previously, H2O Hospitality completed a $7 million Series B round in February 2020, with investments from Samsung Ventures, Stonebridge Ventures, IMM Investment, and Shinhan Capital.

Expansion Plans for 2022 and Beyond

According to John Lee, co-founder and CEO of H2O Hospitality, the company intends to broaden its service offerings by incorporating diverse accommodation types in both South Korea and Japan throughout 2021 and 2022.

Furthermore, H2O Hospitality is planning to enter the Singaporean and Indonesian markets in the fourth quarter of 2022, aligning with its broader Southeast Asia expansion strategy.

Partnerships and Technological Advancement

H2O Hospitality is currently engaged in discussions with several major global hotel chains to collaborate on their digital transformation initiatives and operational improvements outside of Korea and Japan, as stated by Lee.

The company will also invest in research and development to enhance its customer channel solutions and refine its contactless check-in systems, tailoring them to the specific requirements of each Asian country.

The Importance of Customization

“Optimal system development and customization are crucial for successful hotel digital transformation, even in a post-COVID-19 environment,” Lee emphasized in a recent interview.

A History of Growth Through Acquisition

Founded in South Korea in 2015, H2O Hospitality has pursued a strategy of growth through strategic acquisitions. The company expanded into Japan in 2017 by acquiring several Japanese hospitality management firms.

In 2021, H2O further strengthened its technological capabilities and commitment to ESG principles by acquiring ImGATE, a contactless hotel solution provider, and Replace, a local creator startup.

Current Operational Scope

Currently, H2O Hospitality manages approximately 7,500 accommodations, encompassing hotels, traditional Japanese inns (ryokans), and guest houses, located in major cities such as Tokyo, Osaka, Seoul, Busan, and Bangkok.

Integrated Hotel Management System

H2O Hospitality’s core offering is an information and communications technology (ICT)-based hotel management system designed to automate and digitize hotel operations. This system comprises a channel management system (CMS), a property management system (PMS), a room management system (RMS), and a facility management system (FMS).

Cost Reduction and Revenue Enhancement

The company claims its integrated system can reduce a hotel’s fixed operating costs by up to 50% while simultaneously increasing revenue by as much as 20%.

The Impact of COVID-19

“The COVID-19 pandemic significantly impacted the hospitality industry, prompting hotels to seek ways to reduce fixed costs, a goal that was previously unattainable with existing operational workflows,” Lee explained.

He further noted that this situation necessitated a shift towards digital transformation.

Revenue Trends During and After the Pandemic

Despite the challenges posed by the pandemic, H2O Hospitality experienced a revenue increase of up to 30% compared to pre-pandemic levels. However, this growth rate has since moderated to 5-15%.

Current revenue drivers include tools designed to improve customer efficiency, such as an automated dynamic pricing (ADR) tool and a diverse range of sales channels, including both online and offline travel agencies.

Onboarding New Properties

Lee also highlighted that the onboarding of numerous new properties has contributed significantly to H2O’s revenue growth over the past 18 months.

“Every hotel we onboarded during the pandemic successfully reversed its financial losses and began to recover,” Lee stated.

The Global Hotel Market and H2O’s Vision

According to Lee, the global hotel market comprises approximately 16.4 million rooms, generating $570 billion in annual revenue. H2O Hospitality aims to digitize all lodging accommodations worldwide.

The company’s primary focus is not on building a hotel brand, but rather on empowering hotel owners to optimize their property operations.

A Transition to Smart Hotel Operations

Lee likened the current hotel operation process to that of “2G phones,” the pre-smartphone era, and envisions H2O transforming the overall hotel operation into a “smartphone” equivalent.

“This transition is as natural for the hospitality industry as the shift from 2G phones to smartphones was for mobile phone users,” Lee added.

Challenges and Future Outlook

Despite progress, cross-border inbound tourism to both Korea and Japan remains restricted.

“We anticipate a recovery in the inbound tourism market within the next year as vaccination rates increase in both countries,” Lee predicted.

Industry Perspective

Jun-seok Kang, managing director at Kejora-Intervest Growth Fund, commented, “We recognized the emerging trend of hotel digital transformation even before the pandemic, but COVID-19 undoubtedly accelerated this transition. We believe H2O is well-positioned to thrive in this evolving hotel market.”