I guess I don't really understand how a 20 gauge shooting the same shot size with, say, 1 ounce of shot at similar velocities will tear up a grouse any more than a 12 gauge with a similar load. Unless you want a 20 gauge just because you can, I'd say the best thing to do would be to buy some 12 gauge shells with lighter 7/8 to 1 ounce payloads.

And consider yourself lucky to have a dog that works birds purely on instinct. It would seem to be a very rare gift even for dogs specifically bred as hunting dogs. My dog (a golden retriever/border collie mix) can't even figure out how to retrieve a tennis ball. Oh, he'll chase it as long as it's moving, but once he catches it he just sniffs it and looses interest. I doubt he's cut out for hunting.

Mike