I have become - reluctantly - a seasoned observer of the ballet / dance world, including festivals and exams.
As others have said, it is not about size of dance school, but about quality - and quality from the beginning really matters, because the basics of extension, placement, foot shape etc are set in the very earliest years and are much harder to correct as the child gets to 8,9, 10.
If your DDs are enjoying their dancing, and are not serious about ti, there is no issue. They can progress through the exam system used by the school - which board is it? - will gain fitness, poise and musicality, enjoy performing on stage, and make friends.
If, however, your DDs have any wish to 'progress' in dance, it is worth just having a quick look at the setup you are in. Are the teachers well trained? Do they teach right up to the higher grades of ballet? Do students from the school do vocational grades (Intermediate foundation, intermediate, advanced) or the higher graded exams (7 and 8)? Are there a good proportion of high marks? Do some pupils go to Associate schemes run by the major dance schools?
When your DD dances at festivals, look critically at her and the other competitors. Look at posture, foot extension, extension of legs and arms, fluidity, neatness, accuracy, elevation on jumps, turnout. Does DD look like her peers from other schools? Or is there a difference? What I mean is that at festivals, to an observer, it can be difficult to spot exactly who will be paced, but it is usually - if a range of schools enter - to see from which pool of competitors the placings will come, and those whose technique is not quite the same.
None of this will matter if you are happy for your daughters to have some fun dancing as a hobby when they are young children. What you are encountering COULD be snobbery, or it COULD be an evaluiation of quality of training - and then you have to decide whether quality of training matters. Your daughter is 7 - but saying 'she's only 7, quality of training doesn't matter at that age' closes off some future possibilities.