I use Amazon, am a Prime member, and find the price and convenience (a well as selection, reviews) really tough to beat. I use the subscription service for a handful of grocery items, staples and/or things that can be bought in bulk. I also have a Costco membership, and this Amazon buying definitely cuts into buying there.
Now Amazon is expanding the grocery focus with Amazon Fresh. I think that they basically want to be bringing items to our doors every day. They are testing this in San Francisco and LA I think, and I think that business model is probably tricky to make money at, but I bet that they can figure it out with the assets Amazon has available.
A question that I have not read or heard asked is regarding the cost, full cost, of shipping all of this stuff in individual packages to our doors. The stuff would have to get to a nearby store anyway, but now it will come in a small box via an individual trip. This must add tremendous cost, waste (boxes, packing materials), pollution. Am I wrong on this? I would actually like to believe so, but have a hard time imagining another outcome.