The Genesis of Zostel
The idea behind Zostel was born out of a simple insight: “You just need a local friend to travel.” Founders Jadan Singh Chan and DV Damir Singh Chan, both graduates of BHU, had a deep desire to create something impactful. Their journey began in 2008 when they developed a fascination for interning abroad. During their backpacking experiences in the UK and Germany, they realized the value of community and the potential for a hostel business in India.
The Early Days of Zostel
After working briefly in corporate jobs, the duo decided to establish India’s first backpacking hostel chain. At that time, the concept of backpacking was almost alien in India. However, once they listed their first hostel in Jodhpur on Google, foreign travelers searching for budget-friendly accommodations started coming in organically. Within a month, they achieved breakeven, proving the demand for their idea.
Understanding Backpacking Culture
Backpacking is solo traveling that pushes individuals out of their comfort zones, encouraging them to meet new people and create shared experiences. Unlike traditional hotels, backpacking hostels foster a community environment, making solo travel more social and engaging.
Choosing Jodhpur as the First Location
Since DV’s family had a background in the hospitality industry, they had access to support and resources. They leased a family property and transformed it into a four-room hostel. Initially, European travelers from exchange programs were their first customers. They also focused on organizing city tours and activities to create value for guests, ensuring repeat business.
Building a Community-Driven Model
Zostel’s core idea was always centered around community building. They designed hostels to encourage interactions, from setting up common room vibes to hiring non-traditional hospitality managers who could add to the unique culture. This approach resulted in seven successful Zostel locations in their early phase.
Scaling Up: Numbers and Growth
Zostel has grown to operate over 110 properties, serving more than 1.5 million travelers. They are now expanding into Southeast Asia and the U.S. To further empower their community, they launched the Entrepreneurship Development Program (EDP), encouraging individuals passionate about hospitality to open their own Zostel franchises with the company’s support in marketing and management.
Business Economics: How Zostel Makes Money
Zostel operates on a community-driven franchise model with two types of projects:
- Greenfield Projects: Built from scratch, requiring investment in land and construction.
- Brownfield Projects: Existing buildings are refurbished into hostels.
For example, in Kumai, a Zostel owner invested ₹1.25 crore to build a 40-bed hostel. With an ARR of ₹1,500 per bed and an average occupancy rate of 70-90%, such hostels generate around ₹21 lakhs in revenue per month. The operator keeps about ₹10-12 lakhs in profit, with Zostel earning 21% in commissions.
The Expanding Hostel Industry in India
The hostel industry in India is still in its infancy. When Zostel started, there were no established competitors. Today, there are several players, but the market still holds immense potential. With a projected demand for 100,000 hostel beds and an industry valuation of ₹10-15 billion, the future looks promising.
Hotels vs. Hostels: A Key Difference
From an investment perspective, hostels are far more efficient than hotels. While hotels cater to individual guests with high per-room costs, hostels maximize space utilization with shared dorms, offering a lower-cost, community-driven experience.
Understanding the Ideal Zostel Customer
The typical Zostel guest is:
- Aged between 18-40 years.
- A solo traveler (50% are solo female travelers).
- From metro cities like Bangalore, Delhi, Hyderabad, and Mumbai.
- A student, startup professional, or adventure seeker.
- Spending an average of ₹1,500 per booking with a lifetime value of ₹5,000.
Lessons from Failures
Zostel’s journey was not without failures. One of their biggest setbacks was Zor Rooms, a venture that did not take off, leading to a difficult phase of depression for the founders. However, they survived by leveraging their community’s trust. During tough financial times, they crowd-funded ₹5-6 crores in two weeks by offering future booking vouchers, proving the strength of their customer loyalty.
Conclusion
Zostel’s success story is a testament to the power of community, perseverance, and innovative business strategies. From introducing backpacking culture in India to creating a 200-crore hostel empire, their journey continues to inspire budding entrepreneurs. With expansion plans in motion, Zostel is set to redefine the travel experience globally.
Frequently Asked Questions (FAQs)
1. What is Zostel?
Zostel is India’s largest backpacking hostel chain, offering budget-friendly, community-driven accommodations across multiple locations.
2. How does Zostel work?
Zostel operates through a franchise model where individuals invest in building or refurbishing hostels, while Zostel manages marketing, branding, and sales.
3. How much does it cost to open a Zostel?
Investment varies by location and project type. A typical greenfield Zostel costs around ₹1.2-1.5 crore, while brownfield projects require significantly less.
4. Who typically stays at Zostel?
Solo travelers, students, startup professionals, and adventure seekers primarily stay at Zostel properties, with a strong representation of solo female travelers.
5. How profitable is a Zostel franchise?
A well-run Zostel property can break even within 6-20 months, with monthly earnings ranging from ₹10-12 lakhs, depending on location and occupancy rates.
6. How is Zostel different from hotels?
Unlike hotels, which focus on individual comfort, Zostel prioritizes community experiences, shared accommodations, and cultural immersion for travelers.
7. Is Zostel expanding internationally?
Yes, Zostel is expanding into Southeast Asia and the U.S., aiming to bring its unique community-driven hostel experience to global travelers.
Zostel’s journey is an inspiration for aspiring entrepreneurs looking to disrupt traditional industries. By focusing on community and experience over mere accommodation, they have carved a niche that continues to thrive in the evolving travel landscape.
