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USA Today reports that as Amazon expands further into groceries with its Amazon Fresh business - which yesterday, as expected, began serving customers in San Francisco in addition to Seattle and Los Angeles - it is putting the priority on convenience rather than low prices, "an approach that could limit how much of this market Amazon can grab from grocery store operators like Safeway and Kroger and other rivals including Wal-Mart Stores, FreshDirect and the start-up Instacart."

"The thought of Amazon entering a new sector usually strikes fear into the hearts of incumbent companies as they worry profit margins will have to fall to compete with the Internet giant's lower prices," the story says. "But AmazonFresh prices are higher, or similar to most grocery stores, according to a recent analysis by RetailNet Group."

Indeed, the "$299 subscription for customers in LA and San Francisco" that "makes grocery deliveries free for orders over $35 and … also gives shoppers access to the benefits of Amazon's Prime service" is seen as evidence that Amazon "is targeting the mid-to-premium shopper who usually buys at Costco, Whole Foods, Bristol Farms and other high-end grocery stores."
KC's View:
I'm not particularly surprised by this, though I can't say that I'm convinced that losing the low price image won't hurt Amazon in the long run. I've gotten emails from folks who are sort of annoyed about not getting the sharpest prices from Amazon, but Amazon also believes that it has all the right algorithms to make sure it has the sharpest prices when and where it needs to.

That said, Amazon seemed to be a lot more hands-on when it launched Fresh in Seattle, hiring category experts to make sure that standards were maintained; these days, it seems to be more algorithm-driven, which could make it vulnerable in the Fresh categories.

However … Keep in mind that it is Amazon's compilation and use of data that really sets it apart, and really allows it to create long-term loyalty. A lot of that can be seen in its Amazon Prime program, which a new study by Consumer Intelligence Research Partners says now has more than 16 million members.

That's an enormous asset, not to be underestimated.