Piedimonte Developments has lodged plans with Yarra Council to build a new supermarket and 98-apartments as part of a $100 million-plus redevelopment of the high-profile North Fitzroy site.

The supermarket, crammed full of Italian produce and goods, is a stalwart of the inner suburbs and continues to be the retail outlet of choice for young picnickers at the nearby Edinburgh Gardens.

However its owners are proposing to demolish the existing double-storey 1960s-era supermarket and build two multi-storey buildings, joined at their second levels over a laneway.

For the L-shaped 3715 square metre Piedimonte site covering 27-45 Best Street and 102-114 Scotchmer Street, architects Peddle Thorp have designed a five-to-seven level project featuring balconies covered in perforated metal.

One building, on Best Street, includes a new supermarket and five-storeys of apartments. The second five-level building is proposed for Scotchmer Street, on the west side of the supermarket's rear lane. Both would retain the facades of several heritage shops, notably the 1920s Fisher and Co motor engineers workshop on Best Street.

The proposal is likely to spark a furore in North Fitzroy where apartment development has been fiercely fought by locals and the City of Yarra.

Some of the area's bigger projects have centred on the broader, leafy Queens Parade boulevard, at its eastern end where it meets the top of Hoddle Street and to the south-west where it intersects Alexandra Parade.

So fierce was the outcry over Tim Gurner's proposal for a 16-storey project at 26-56 Queens Parade that the planning minister and local member Richard Wynne imposed a special 10-level limit on development along the strip.

The 10-level restriction effectively halved Mr Gurner's proposal and the same fate could hit a joint venture between Salta and Wulff Projects which has proposed a 17-storey apartment building at 249-261 Queens Parade in Clifton Hill.

Sam and Mal Piedimonte, the brothers who own the continental supermarket, are not proposing anything quite so ambitious for their site although the inclusion of several heritage buildings and the three-metre setbacks will likely spark opposition.

Three generations of the Piedimonte family have run the supermarket since it was established in 1958. The supermarket building was constructed in stages in the 1960s.

The new 2894sq m supermarket includes a mezzanine level, similar to the existing shop plus a new 877sq m bottle shop and 1763sq m of back of house storage and operations.

The 89 units include 23 one-bedders, 62 two-bedroom flats and four three-bedroom apartments. A three-level basement car park would have 164 spaces and 86 bicycle bays.

However, the project is larger than many of the other developments in the strip, many of which are four storeys. Nearby, construction of Milieu Property's four-storey project at 2 St Georges Road is under way.

There is another seven-storey proposal in the works for the old Tradelink showroom further up the road at 378-390 St Georges Road near the bridge over the Merri Creek.

The move to develop now valuable inner suburban property is not unique. Banco Group rebuilt the old Smith Street Coles building, as Smith & Co, which has 232 apartments.

Furniture retailer Franco Cozzo is flirting with residential plans for his Brunswick and Footscray stores and the owner of Northcote Plaza even built an apartment tower at the back of the Separation Street car park.

Supermarkets are relatively common elements of new residential developments. Woolworths has even included apartments above new supermarkets, most controversially in North Melbourne.

The Piedimonte family has a second supermarket in Pascoe Vale South on Bell Street. They were contacted for comment through their town planning consultant Contour.