Petrol stations are booming - not because of $135 oil, but shopping

Just a year ago, petrol stations were under threat, facing redevelopment as flats as profits from fuel sales collapsed Now the survivors are being transformed into profitable concerns. But it's not because of the soaring oil price, which has doubled to over $135 a barrel since the start of 2007.

The secret, say industry analysts, is the forecourt shop.

Once fit only for shrink-wrapped sandwiches and wilting carnations, they are now challenging big supermarkets with carefully selected ranges of quality food and convenience items.

Two years ago the capital was losing one filling station every nine days as the profitability went out of fuel. It left scores of routes across London with no garages.

In 2000 there were 1020 filling stations inside the M25 but in 2006 the number slumped to 750, with further falls expected.

UK-wide says Catalist, 650 forecourts closed in 2005, falling to 420 in 2006. However, in 2007 only 200 sites closed and many of those went because they stood in the way of major road schemes and other key redevelopments.

In 2007, only 18 forecourts closed in London, leaving a total of 730 within the M25 and 9500 across the UK. In 2008 only two further stations have closed.

"The situation is changing fast and there's a new saying in the industry - forecourts are on fire," said Arthur Renshaw of Experian Catalist, experts in forecourt retailing. "People don't want to go back to a big supermarket where they bought their week's groceries in the morning just to buy a pint of fresh milk, bread and cigarettes in the evening. They don't want long queues at the till when they can nip into a forecourt convenience store."

Catalist says that two years ago, ailing forecourts were routinely bought up for conversion into flats and houses. Now entreprenneurs and private-equity firms are moving in to keep them going as forecourts where they will drive customers into their new-look branded shops.

The U-turn has seen price of fore-courts rise to £1 million from roughly half that two years ago. Prime locations have risen more sharply still.

"If a forecourt comes onto the market today you will have a queue around the block wanting to buy it and put a shop in," said Renshaw.

Firms leading the charge to "rescue' forecourts - where operators take between only 2p and 4p per litre of fuel, with a tiny proportion of that as profit - include BP with Marks &Spencer's Simply Food stores, Spar, Somerfield and Tesco Express. One of the very first supermarket-branded convenience forecourt stores was started by Tesco at Barnes Bridge, 15 years ago. "Now it is big business," says Renshaw.

Ten years ago a forecourt shop did well if annual turnover nudged £1 million. Today the benchmark is £4 million, with higher-end stores achieving closer to £8 million.

The total retail "convenience" market is £25 billion a year, of which around £4 billion is on the forecourts.

"Long gone are the days when you would not think of buying your food from a forecourt shop," said Renshaw. But could the shops survive without the fuel? "If you want a successful forecourt shop you still have to have fuel because it drives people to the shop," he explained. "While petrol and diesel consumption is still static, people still need it. In fact the recent wave of closures has meant that those that survived have an extra advantage in that they are experiencing slightly increased volume."