Tighter profit margins on fuel sales are forcing forecourt retailers to expand their services in order to stay profitable, while some operators are opting to sell out to developers instead.

The simple reality is that profits are now so tight, more and more sites are being viewed as potential property developments rather than locations from which to sell petrol, a spokesman for the Irish Petroleum Industry Association (IPIA) says.

Statistics collated by the association indicate that more than 600 service stations have closed in the past four years.

There's an absolutely clear pattern indicating a steady decline and the pattern of closure is quite evenly spread across the country, the spokesman claims. The precise number of closures isn't as important as the fact that the trend is a straight line downwards. In remote areas it's of particular significance because there you're seeing the beginning of the 'retail desert phenomenon', with motorists effectively having to drive to buy petrol as opposed to pulling in when they're passing the pumps.

The IPIA says high taxes and tight profit margins are forcing retailers to consider their options. The before-tax price of a litre of petrol selling at the pumps for 1.10 is 46 c. Profit margins are now extremely tight.

Profit margins on a litre of petrol are generally no more than a few cent, although it's hard to be precise because of the divergence in price from station to station. In the past, retailers who took out long-term supply contracts, often for up to 10 years, with particular oil companies were better able to regulate prices, but a five year cap introduced by the EU has made this kind of price control more difficult to manage.

On top of that, if you have a very large retailer selling virtually at cost price, or below it, you will, eventually, drive out the small operator, the spokesman claims.

According to Marie Hunt, head of research with CB Richard Ellis, the ongoing development of the country's road infrastructure is effecting the strategic viability of certain petrol retail outlets. Big players like Esso and Shell are consolidating. That's happening not just here but right across Europe. More and more old locations are going to disappear and in future filling stations will only be located on or close to major routes.

Last week in Dublin three more petrol station sites came on the market. Topaz, the company which recently acquired Shell's retail business in Ireland, plans to offload the Ashurst filling station on the Stillorgan Road along with other outlets at Harold's Cross and Greystones village in Co Wicklow.

Hamilton Osborne King is to sell the properties by tender at the end of this month. The agency is quoting a guide price of 10m for the Ashurst facility which occupies a site of 0.69 of an acre.

A feasibility study has shown that with residential zoning already in place the site could accommodate 46 apartments. A selling price of 10m would work out at a cost, before stamp duty, of 217,391 for each apartment.

HOK says that such a density can be expected after the planners recently granted permission for 48 apartments on a smaller, adjoining site which was formerly used as a headquarters by MC O'Sullivan Engineering.

A guide price of 3.5 m has been set for the 0.41 acre Harolds Cross site and in the case of the Greystones site, which covers 0.67 acres the price set is 3.75 m.

The catalyst for all this was the fact that Tesco came into the market and started undercutting the oil companies, says David Freeman of Ganly Walters.

Retailers who are making very little in terms of gross profits on their petrol sales are now saying, lets just rationalise.

Esso, for example, have sold off a huge number of their sites and are now concentrating on top quality locations.

They're only interested in retaining state of the art filling stations with a decent sized forecourt and a convenience store, at a location that will attract a sufficient number of motorists to ensure they make money.

We've been involved in selling off a number of Texaco sites lately . . . but they're all sites that weren't particularly profitable. They either needed an unjustifiable level of investment or the alternative-use value of the site had become even greater than their worth as locations from which to sell petrol.

Most of these service stations are reasonably well located and are suitable for commercial or residential development . . . so you have a potentially very valuable piece of real estate sitting there, and the temptation is to realise that says Freeman.

He claims some rural stations are actually better able to resist current market pressures than urban operators.

Some of these country stations are family run. There might have a small supermarket and sell solid fuels and have a tyre sales and puncture repair business as well. So long as they're in it for the long haul they will probably survive.

Freeman believes that while the number of outlets is falling dramatically, there were, in the past, too many filling stations in Ireland. I think things will stabilise and we'll reach an equilibrium.

With more and more cars on the road, demand will dictate what will happen next.

Roughly 20% of RGDATA's 4,000 members are forecourt retailers. For them, the association claims, times have never been tougher.

The retailers who are managing to survive are finding they're having to work hard at expanding the non-fuel end of the business, spokeswoman Colette Coughlan said.

"Our members are finding they're having to diversify all the time in order to retain existing custom and to attract new business. The growth in off-license sales at forecourts is one example of this. Now the latest trend is in what's called 'dashboard dining' . . . offering customers hot food and delicatessen-style products."

The big worry, the huge worry, all our members voice is over the impact Tesco's arrival onto the market is having. There's already anecdotal evidence of retailers going out of business because they simply couldn't compete with Tesco's cutprice sales policy, " she said.