UPDATE 2-Ocado buoyed by online delivery demand and M&S switchover

* Ocado Retail Q3 sales up 52%

* Says switch from Waitrose to M&S products went well

* Group raises earnings forecast

* Ocado shares up 5.3%, M&S up 4%
(Adds detail, finance chief comments, shares)

By James Davey

LONDON, Sept 15 (Reuters) - British online supermarket Ocado
Group's joint venture with Marks & Spencer had
a 52% sales surge in its third quarter as the COVID-19 pandemic
generated huge demand for online deliveries.

The Ocado Retail venture said the Sept. 1 switch from
Waitrose to M&S products had gone well and Ocado Group raised
its earnings forecast. Ocado shares were up 5.3% at 0934 GMT on
Tuesday, extending 2020 gains to 94%. M&S shares were up
4%.

"Customers have responded very positively to the
switchover," finance chief Duncan Tatton-Brown told reporters.

He said 98% of customers were already shopping for M&S
products, while the new ranges had increased the average basket
size by around five items and were driving strong demand for
future delivery slots.

Online grocery shopping has doubled its share of the UK
market to 14% since the start of the pandemic and Ocado reckons
it could reach 30% over the next few years.

Ocado's capital-intensive and centralised fulfilment model
meant it has not been able to dramatically increase its capacity
during the crisis.

That contrasts with Britain's big four grocers - market
leader Tesco, Sainsbury's, Asda and
Morrisons - who were quickly able to adapt their
predominantly store-pick model to boost capacity, enabling them
to deliver faster growth and win online share in the short term.

Morrisons, for example, increased its online and home
delivery order capacity fivefold over the last six months.

Ocado said it was on track to increase capacity by 40%
through to 2021.

Ocado Retail's revenue was 587.3 million pounds ($755.9
million) in the 13 weeks to Aug. 30, its fiscal third quarter,
versus 386.4 million a year earlier. Second quarter sales had
risen 44%.

Average orders per week rose 9.6% to 345,000, while an
average order size of 141 pounds was below COVID-related peaks
but above pre-crisis levels.

Ocado Group forecast full year 2020 core earnings (EBITDA)
of at least 40 million pounds, ahead of a pre-update consensus
of 26.2 million pounds and 43.3 million pounds made in 2019.

($1 = 0.7770 pounds)
(Reporting by James Davey, editing by Louise Heavens and Jane
Merriman)