Cotati-based supermarket chain Oliver's Market plans to move its original store, but will keep it in the city, company officials said Wednesday.

Now on East Cotati Avenue, the store — one of three Oliver's in Sonoma County — would move to Highway 116 and Old Redwood Highway at the city's northern entrance. The company plans to build a 76,000-square-foot shopping plaza on the site.

"Cotati is a very special place for our store and I think our store fits a very special need in Cotati," said General Manager Tom Scott. "We'll walk the plans into the city next Wednesday morning."

The decision, reached after a year and a half of talks with the city, is a key development for Cotati where the market was started 23 years ago.

"It's important to keep Oliver's in Cotati," said Councilwoman Pat Gilardi. "It's an institution and they're one of the major businesses in town."

The company failed to reach agreement with its Mill Valley-based landlord, and the current lease is up in August 2014. Oliver's plans to start construction on its $18 million new store site and shopping plaza in spring 2013, Scott said.

As envisioned, the new shopping plaza will include a 40,000-square-foot grocery, 14 apartments, office space, and 18,000 square feet of retail space, potentially increasing Cotati's sales tax base.

It also would be located on what is now a large vacant lot at the head of a downtown district that the city is desperate to redevelop.

The process was outlined two years ago, and the proposal helps "jump start that plan," Gilardi said. "We look at the downtown specific plan and Old Redwood Highway as the town's future economic engine."

Development of what the city calls the Northern Gateway "will bring people to live and work in this area, with both residential and commercial development," said City Manager Dianne Thompson.

In the mid-1990s, Lucky Stores proposed to open what would have been its largest Northern California supermarket on the same property, igniting one of the city's major political battles.

Scott said Oliver's has spent about $160,000 on consultants, chiefly for environmental aspects of the project, and is mindful of public sensibilities in the city of 7,500 residents.

"Because we've been part of Cotati for so long, and we know the politics in town," Scott said, "we tried really hard to present a project up front that will satisfy all the various factions in Cotati that might object to the development."