You seriously think that small shops would be competitive if there were no subsidies? No hygiene I could maybe buy, but it goes hand in hand with quality, and there is practically no regulation for that: it's self imposed by the consumer picking pretty produce.

The consumer learns very quickly what they like. Eat a good tomato, you’ll look for one next time. The local fruit shop was even a joke in Seinfeld, I believe.

The closing of the small grocery store and producer can be mostly attributed to regulation.

No. They can be attributed to not being able to compete against big chains despite heavy regulation in favor of small businesses.

Big chains can offer what the average consumer wants in greater variety and cheaper, at more places and longer hours. They can gauge prices, do better marketing, have better stock, and wage price wars. They have more power, and what's the purpose of that if not abusing it?

Less regulation would just mean even worse food and less small shops.

Chains have whole departments dedicated to compliance. They chew through any new regulation you throw at them.

I get my groceries from a tiny neighbor market here in Eastern Europe. Usually from women of surrounding villages. Their main worries are in this order: raising market space fees (these go to the city) and new checks and rules they need to follow.

Nonsense. Like many market failures it is about consumers facing decisions but lack good information to make their purchase decision or need to optimize over too many competing product parameters.

For supermarket produce there isn't a good way to judge product quality before buying. There is some quality improvement with paying more but usually the improvement is very little compared to the price increment. For instance, a supermarket might sell tomatos at 2.99 for regular tomatos and 4.99 for a premium/organic variety. The taste will only marginally differ so that only few people buy premium. This prevents economies of scale for the better product to drive down the price.

Very little about this is about regulation.

While I think there may be something to that, I think there's a simpler, more "it's just normal capitalism" explanation:

Making deals with every local small-time producer would be a big pain. Why do that when you can make a single deal with a giant monster of a tomato producer, and sell their tomatoes (especially since as the sibling comment points out, local tomatoes won't be as pretty and as uniform in quality)? There's economies of scale, prices are lower, the supply chain will be simpler, it's all better for the supermarket chain.

Small grocery shops can and will deal with small producers. The fact we are losing both in favor of giant chains is largely due to regulation and subsidies.

Otherwise we’d have plenty of boutique retailers and producers charging more for better quality produce optimized for different factors.

I don't understand what is regulated here, so that it prevents small sellers from being competitive. Is it packaging?

He is complaining about grading of fruit, so that the buyer doesn't have to inspect every single delivery but can instead order X fruit, grade Y, and it will conform to standard.