Woolworths has thrown down the gauntlet to the corner stores in Sydney with an application to redevelop 302-306 Elizabeth Street in Surry Hills into a two-level convenience-style supermarket complete with an internal coffee shop that can trade 24 hours, seven days a week.

Woolworths has a smaller format store in Sydney's Woolloomooloo area. It will use that store as a benchmark for its proposed 200-square-metre to 400-square-metre sites.

The grocery giant has enlisted real estate agents to look at similar sites across the country, some of which are leased by convenience stores including the original, United States-based 7-Eleven.

Real estate agents have indicated that other supermarkets including Coles and Metcash are believed to have strategies to roll out smaller stores to cater for new apartments in the cities, which have smaller retail sites at ground level.

The expansion of corner store-level sites is based on similar moves overseas, where supermarkets such as Tesco and Sainsbury's in Britain have more than 500 small format stores each.

Combined Residents Action Association chairman Anthony Senti said there was a move away from the big supermarkets in Britain as convenience stores were opening across the region. Sainsbury's was opening two convenience stores each week.

British data shows the number of Sainsbury's Local convenience stores has overtaken the number of supermarkets run by the company; evidence of the dramatic shift  within the grocery industry.

A week after Sainsbury's, Tesco and Morrisons downgraded their annual forecasts, Sainsbury's will open its 594th convenience store.

Woolworths' Metro stores were modelled on Tesco Metro. The planned Woolworths convenience stores are said to be again following a Tesco-style express store.

"The corner store, as a general description, is being outgunned by the big chains, who have too much firepower," Mr Senti said.

One trigger for the small format push is the growth in inner city living, where residents want to grab groceries at night at "supermarket" prices but within walking distance.

Convenience Concepts director Buddy Chebib, a long-term owner of two stores in Sydney, says the push by the major supermarkets will have an impact on his business.

"We own a store in Crown Street, east Sydney, and already Woolworths has opened a Thomas Dux supermarket nearby, which, we assume, is to test the waters for a small supermarket concept," Mr Chebib said.

"But we are prepared to take them on. We now offer home deliveries within a 60-minute radius and online shopping,  that can include dry cleaning, groceries, to a late night demand for McDonald's.

"We are taking up the challenge as we must innovate to survive."

Mr Chebib said the launch of any smaller supermarket could also have a knock-on effect for local bakeries, butchers, newsagents and even dry cleaners.

"These stores by the supermarkets could have a detrimental effect on all surrouding small businesses," Mr Chebib said.

As well as offering fresh and packaged groceries, the corner stores and supermarkets area are considering the potential for having lockers available to collect online shopping items.

In the US, eBay and 7-Eleven are considering a joint proposal to have lockers in the stores and online retailer Amazon is mulling opening a bricks and mortar store.

The Australasian Association of Convenience Stores has said the supermarkets' growth strategies have raised questions for smaller operators.

Association chief executive Jeff Rogut said there must be a level playing field in the retail sector.

Furthermore, the Australian Competition and Consumer Commission gave its stamp of approval to the findings of the draft report of the Harper competition review.

Commission chairman Rod Sims said he supported the Harper panel's focus on opening as many sectors as possible up to the disciplines of competition, and getting the settings of the competition law right.