Want to get an idea of how the grocery industry in Sacramento is shaping up? Then keep an eye on the labor negotiations in the south part of the state.

The tense negotiations there between the "big three" supermarket chains and their workers' union underscore the challenges facing the industry statewide -- and undoubtedly will set the table for contract talks in Northern California later this year.

"What happens in the south will have a big impact on what happens in the north," said Ken Jacobs, a labor expert at the University of California, Berkeley. "Everyone's eyes are on what's happening there."

United Food and Commercial Workers leaders in both parts of the state want to claw back wage and benefit concessions they made in the last contract. The supermarkets insist they need to hold down labor costs to compete with non-union grocery retailers such as Wal-Mart Stores Inc.

Both sides say that they want to avoid a strike, but deep divisions over the state of the industry, particularly the impact of non-union Wal-Mart, have bogged down labor negotiations in Southern California with Supervalu Inc.'s Albertsons, Kroger Co.'s Ralphs and Safeway Inc.'s Vons and Pavilions. Negotiations resume today.

Rick Silva, Modesto-based Save Mart Supermarkets' senior director of employee and labor relations, expects that Wal-Mart's emergence will be "a huge factor" when his company, Raley's and Safeway stake out their Northern California contract bargaining positions later this year.

"(Non-union stores) have been taking an ever larger slice of a pie that has not grown as rapidly as their entry into the marketplace," Silva said.

The mere threat of Wal-Mart creeping into California's grocery aisle three years ago pushed the Southern California union and grocery chains into a bruising 141-day strike before workers made concessions that included a two-tier system splitting employees into different wage and benefit classes.

The union and chains in Northern California avoided a strike, but labor signed off on a pact with longer periods between raises for new hires, longer qualifying times for employee and family medical benefits, and monthly contributions from retirees for their health plans, among other concessions.

Union scale in Northern California ranges from $8 per hour to $20 per hour. The contract expires Oct. 6.

"Northern California saw what happened with the strike down south and wanted no part of that," Jacobs said. "They'll take their cue from this round of talks, too."

While Wal-Mart looms large, big changes in the industry could change the dynamics of this year's talks locally:

• Sacramento-area grocery workers merged their union with its Fresno counterpart in a bid to strengthen their collective bargaining power. The consolidation created UFCW 8-Golden State, one of the largest United Food and Commercial Workers union locals in the West with 30,000 members.

• Modesto-based Save Mart bought 130 Albertsons stores, catapulting the no-frills chain into the No. 2 spot among Northern California grocers behind Safe-way. Save Mart now has about 250 stores and 20,000 employees from Bakersfield to the Oregon border.

Wal-Mart has rolled out 22 Supercenter stores statewide that merge a discount department store and a grocery store, up from one Supercenter three years ago. The company has plans to add at least 20 more, including four in the Sacramento area.

• Kroger-owned Ralphs Supermarkets won't be a party in Northern California's labor talks. The company closed its struggling Northern California division in 2006, including eight stores in the Sacramento region.

The union complains that the larger chains are wildly overstating Wal-Mart's impact. Figures show the company accounts for less than 1 percent of Southern California's grocery business, and about 3 percent statewide.

Meanwhile, Safeway and Kroger have posted healthy profits. Safeway's year-end 2006 earnings hit $871 million, the company's best year since 2001. Kroger reported its earnings jumped 16 percent to $1.11 billion for the year. And, union leaders note, smaller regional chains in the south already have signed tentative labor pacts that boost employee pay and benefits.

"The competition argument is a red herring," said Southern California UFCW spokesman Mike Shimpock. "Wal-Mart has foundered on the shoals in Southern California."

Still, the huge Bentonville, Ark., retailer can't be dismissed, said Kent Wong, a labor relations expert at UCLA.

"Wal-Mart is the grocery industry's largest employer and it's aggressively growing in California," Wong said. "So it's setting the standard for the industry."

In the Sacramento region, Wal-Mart's two Supercenters garnered nearly 5 percent of the market in the last six months of 2006, according to industry tracker Nielsen Trade Dimensions' Market Scope report. Nearly every traditional grocer's market share flattened or declined except for a modest gain by Safeway.

Look for labor negotiators for UFCW 8 to downplay Wal-Mart's impact when they start talking with Raley's, Safeway and Save Mart, Wong said.

"They'll make the same argument that Southern California's union is making now," he said, "that the stores are just using Wal-Mart to keep the health care and wage take-backs they got in the last contract."

Adena Tessler, a spokeswoman for the Southern California chains, declined to comment on the negotiations.

The talks there hit a snag when union negotiators temporarily left the bargaining table after the supermarkets said they would lock out workers if any one of the stores became a strike target. The union returned to the table, but the expired contract now is renewing on a daily basis. Either party can end negotiations at any time, and a strike or a lockout could start 72 hours later.

UFCW 8, based in Roseville, declined to talk about specific bargaining points or a timetable for upcoming Northern California talks.

The chains weren't saying much either. Safeway spokesman Brian Dowling wouldn't talk about Wal-Mart or his company's bargaining strategy when labor talks shift to Northern California.

"We're not saying anything because negotiations are still so far away," Dowling said.

Raley's spokeswoman Amy Johnston said, "It is always our goal to negotiate agreements that are in the best interest of our colleagues, our customers and our business."