1. Not hypothetical - our local kosher bakery went totally nut-free because all of the religious schools need nut-free foods. Guess what - they suddenly became a prime supplier to additional places who have no interest in kosher but need nut-free and vegan, including two preschools at local churches (which is how I know the story).
2. In a small town, there may not be a different shop so close.
3. The only lawsuits that I have read about that might be described as trying to "destroy a small business owner" were cases were people made an agreement or order or reservation, paid money, and were canceled on too late to make alternate plans. That sort of thing causes havoc in totally average cases - here in the NYC area, just a few months back, there was an uproar because a bridal shop suddenly locked its doors, and the owner decamped with whatever deposit money there had been, leaving hundreds of brides and bridesmaids without their promised dresses. Nobody cared about the unpaid employees and bills; all of the publicity was on the weddings planned for that weekend, with dresses already fitted but locked up behind police tape. But that was nothing personal; everyone was being impacted.
Imagine now if the owner had called up only one couple and said, "I know your wedding is coming up, but I decided my conscience wouldn't let me go through with the order for your dresses. You'll just have to get them somewhere else." And imagine that this wasn't in the NYC area where there are lots of other options, but in a small town. Oh, wait - I forgot - what's the reason for this attack of conscience? Maybe it's a mixed-race couple? A May-December romance, in "the wrong" direction (whichever bothers you more)? Whatever other random bee the store owner finds in his/her bonnet? No, none of them is acceptable under law and custom, no matter how convinced the store owner is that it will all end in tears. But somehow those particular style of dresses don't belong on . . . . . THOSE . . . sorts of people. You know, the more I write this, the stupider it sounds, and I thought that attitude was a waste of effort already. Some object to society allowing some people to marry; I object to stupid people marrying and having lots of stupid children, which is more of a problem in the long run. But so what. It's allowed now. And if they want a dress, or a cake, and someone is in business to sell dresses or cakes, it doesn't make you one of them to sell them the damn dress or cake. You'd sell them a party dress or a birthday cake without even thinking about what good friends they are. "I'm not selling you a cake because you're the wrong sort of people" just sounds so 3-year-old.