Financial Times - 10 Mar 07
FROM TOILET STOPS TO COFFEE SHOPS
The motorway service station is changing, with rules governing them set to be relaxed, writes Tom Braithwaite.
Few motorists pulling off the motorway this weekend will realise it, but service stations are getting sexier.
Aficionados may have appreciated improving toilet standards and the gradual appearance of familiar high-street brands, but investors are more interested in a potential step-change in the way they are used, regulated and valued.
The auction of the £375m portfolio of service stations owned by Robert Tchenguiz is only the latest sign of activity in a buoyant property market. Of the three big operators, two have changed hands in the past 12 months while another one carried out a recapitalisation.
Moto, the largest operator, was acquired by Australia's Macquarie Bank last April for £600m from Compass Group. Welcome Break last week carried out a £300m recapitalisation, which gave the business a valuation of about £500m. RoadChef was sold this month by its Japanese private equity owner to Delek Real Estate, an Israeli property company, for £375m including debt.
Service stations have been seen as infrastructure assets - offering their owners steady but unspectacular profit growth in a regulated environment with limited competition.
Now there is a renewed competitive fervour amont the big three, who are signing up large retailers to convince drivers to stop and to persuade those who do stop to spend more.
The government has also just finished a public consulation on the rules governing the country's motorway services and is expected to relax what is a patchwork of occasionally draconian law.
"There's some fairly quaint 1960s rules, " says Edmund King, executive director of the RAC Foundation, the motoring association.
Tim Moss, chief executive of Moto, has an exclusive partnership deal with Marks and Spencer, partly with the aim of persuading commuters - who seldom stop at motorways - to pull off and buy their evening meal from an M&S Simply Food store.
As part of this push, he would like to be allowed to sell alcohol - but does not think it will happen. "I think everybody knows it's bonkers but it's not acceptable politically to do that. We don't want football supporters whooping it up on alcohol," he concedes. "But we don't see them whooping it up on Marks and Spender's cabernet sauvignon while going down the slip road."
The more bizarre rules include a ban on meetings of more than 12 people. It might go, but the government is keen to hang on to the original spirit of the law: service stations, according to the Highways Agency consultation that closed last month, must not become "destinations in their own right".
Mr. King, of the RAC, approves: "We don't want to have a cinema there or a bowling alley. We don't want them to be out-of-town shopping centres."
There is little enthusiasm although they are keen on installing high-street brands such as WH Smith and M&S alongside the petrol pump.
Then they just have to get round the problem of advertising the fact. RoadChef set up a company called RoadChef Costa Coffee to get round restrictions that only allowed the company name on motorway signs; Moto Marks and Spencer is registered for the same reason.
Again, any changes could be contentious. "We don't want motorways to become American freeways with bill-boards every 10 metres," says Mr. King.
But neither do the operators - which is another reason why this year's likely revision of the law could align the interests of the government and motorists' organisations with the commercial interests of investors in a sector that no longer looks as tired as it once did.