They run a near monopoly, charge a fortune but can't make money

HESTON, Knutsford, Leigh Delamere, Sandbach . . . names to strike terror into the hearts of motorists.

They may be essential, but motorway services have a lingering reputation, sometimes unfairly, for high prices, poor food and surly staff.

With millions of customers guaranteed every year, it is no wonder the companies behind the motorway services network are perceived to be on the fast lane to riches. But it has been more like being stuck on the M25 for most of them.

The sector is dominated by three main players - Welcome Break, Roadchef and Compass-owned Moto - which between them own more than 90% of the services in a market that boasts 98 sites.

But size is no guarantee of profits. Welcome Break, the second-largest operator, is teetering on the verge of administration. Its owner, Bahrain-based Investcorp, has desperately been trying to rearrange its £376 million debt raised on growth predictions that never materialised.

Unless a deal is reached with its bondholders, the company will go into administration. It recorded a loss of £504,000 last year.

Its smaller rival, Roadchef, owned by Japanese bank Nikko and investment bank Credit Suisse, is also struggling.

Like Welcome Break, it suffered a downgrade last year with rating agency Standard & Poor's and it was warned that it was in danger of breaching its debt agreements unless there was a considerable improvement in business. It was in the red last year, losing £7.1 million, mainly because it, too, has a hefty debt.

Moto's figures cannot be isolated from the overall figures for Compass.

According to Jeffrey Young of research company Allegra, motorway services suffer from a massive public misconception.

'You'd think that motorway services would be highly profitable, but they're not,' he says. 'They are restricted in what they can do and they have to do many things that don't generate much revenue.'

Legislation blocks motorway services from marketing themselves as destinations in their own right to prevent them adding to motorway traffic, which means no attractive supermarkets, health clubs or clothes shops. Planning permission is extremely hard to get and there must be at least 15 miles between services.

Retail space is limited and all sites must provide fuel, food, hot beverages and toilets 24 hours a day.

While food prices can be 50% higher than at a supermarket, the industry claims it is just covering the costs of its obligations. Only five% of motorway drivers actually stop at service areas - though that adds up to millions each year - and only 60% of those spend any money there.

But with restrictions on what they can provide to customers, the operators' hands are tied.

'Their whole focus is on milking what they've got rather than expanding,' says Young. 'They are desperate to raise the average spend.'

Worryingly for operators, the numbers of people stopping and spending are barely increasing.

One operator told Financial Mail: 'There is absolutely no growth in this area at the moment. We thought the numbers would be increasing but they're not,' while another said: 'Our footfall [the number of people visiting] is growing, but not as much as we'd like.'

But some operators have gone on the offensive. Roadchef, under chief executive John Greenwood, has injected £30 million to upgrade its brand.

A defiant Greenwood said: 'In the old days, people were right to feel that motorway services were poor value, but now, while we can't be cheap because of our fixed costs, we can offer excellent quality and convenience. People should take a fresh look.'

Moto's managing director, Tim Moss, agrees. 'Value and cleanliness have been improving. Our job now is to persuade people of this.'

Analyst Anna Overton of ratings agency Standard & Poor's says that motorway services operate in a difficult sector.

'Just because people come through the door doesn't mean they will buy things.

'Service operators make next to nothing on fuel, so it's vital they persuade people to spend with them. But profitability can be wiped out by not being able to cope when a massive coach party turns up.'

The big operators have each invested millions in their brands and the rewards are beginning to come, says Overton.

Moto is testing Marks & Spencer's Simply Food outlets; Welcome Break brought in food guru Egon Ronay to boost its food; and Roadchef is promoting wireless internet access. But they will have to sell a lot of burgers before they see a return on their investments.