Why settle for a small grocery? People still use physical grocery stores, and that building is one of the few downtown that can support a full size one. Penalizing people who live downtown by forcing them to either endure the inevitable higher prices and limited selection of small groceries or cling to their personal vehicles as they fight over insufficient downtown parking so they can get to a "real" grocery isn't right. Whether the original building is kept or a new one built, this should be heavily considered.

If it's feasible to convert the upper levels to residences, sure, but as you point out the building has layout issues for that. If movie theaters weren't so dead (especially in pandemic world), I'd say a small theater with a few screens could go there since the city doesn't have one at all anymore, but unless they see some sort of post-pandemic recovery I don't see that being successful either. So I'm not really sure what the best idea would be for the upper levels. Maybe a new building is needed after all.