Understanding Mom-and-Pop Businesses and Investment Opportunities

What Is a Mom-and-Pop Establishment?

“Mom-and-pop” is a colloquial term used to describe a small, family-owned, or independent business. Mom-and-pop stores often struggle to compete with bigger establishments like big-box retailers, which have more buying power. They offer personalized, local service and a unique community role.

Recently, "shop local" and "shop small" have become marketing slogans to support these smaller businesses. The term “mom-and-pop” can also refer to inexperienced investors who casually play the market.

Exploring Mom-and-Pop Businesses: Challenges and Opportunities

Mom-and-pop stores historically were local family-owned-and-operated general stores or drugstores. Today, mom-and-pop establishments are synonymous with various different types of businesses, including restaurants, bookstores, automotive repair shops, and insurance agencies.

Mom-and-pop businesses face disadvantages compared to large companies, which have larger budgets, brand awareness, and access to resources. This collectively gives larger players an edge over mom-and-pop businesses, which frequently lose ground and find themselves driven out of business when forced to compete.

There's hope for mom-and-pop stores as consumers now demand more personalized products and services. Shoppers can easily find mom-and-pop shops online. Small businesses can reach more people and expand geographically using e-commerce and social media.

Mom-and-pop shops also gain from "Small Business Saturday," started by American Express in 2010 with the U.S. Small Business Administration (SBA). It aims to boost local shopping after Thanksgiving, and it seems successful. U.S. consumers spent an estimated $17.9 billion at independent retailers and restaurants on Small Business Saturday in 2022.

This shopping holiday was established in response to Black Friday, when large retailers offer enticing discounts to consumers on the day after Thanksgiving. Mom-and-pop business owners tend to have a vested interest in the community, its citizens, and the local economy. Consequently, they offer highly interactive and personalized services that large corporations cannot replicate. For this reason mom-and-pop stores often win increased brand loyalty among consumers.

Comparing Mom-and-Pop Investors and Establishments

“Mom-and-pop” is also used to refer to inexperienced investors who minimally invest in the stock market. Despite limited capital commitments, mom-and-pop investors often count on significant returns on their trades in order to supplement their income.

However, many mom-and-pop investors are unfamiliar with market research and so react impulsively to market changes and fluctuations. They rashly dump their positions rather than riding out rough patches. Some mom-and-pop investors combat their inexperience by hiring brokers to facilitate trades or using one of the many online trading platforms to place their investments.

The Bottom Line

Small businesses are an important part of the U.S. economy, and mom-and-pop stores are a bedrock subset of them. They inspire brand loyalty and, if successful, develop a devoted local clientele. They benefit from trends like "shop local" movements and events such as Small Business Saturday, which drive consumer attention toward independent retailers. But they face competitive challenges due to larger competitors like big-box retailers and e-commerce platforms.

When the term is applied to financial investors, it means people with limited knowledge of the stock market who nevertheless invest in small amounts as a way to boost their income.