They work out best if they specialise in less in-demand items, like asian stores or fruit stores (where freshness of produce is their sole goal). But at the same time these simply can't exist every few blocks or so by the nature of being specialised.
That might depend upon your locale.
> small, diverse stores who sell local products over big supermarket chains. Unfortunately, in most big cities in EU
I guess it depends but where I am more upscale areas are full of such shops. Even right next to large supermarkets. They do fine because they offer niche/specialized products at much higher prices, to people who are willing to pay X times more for grass feed ultra organic beef raised in a “small farm” with the deceased cow’s former exact former address on the packaging than for factory processed anonymous beef imported from some “inferior” country..
However while superficially these might seem similar to family owned corner grocery in economically less developed countries they are almost nothing alike.