The pair, aged in their late teens or early 20s, entered the milk bar on the corner of Joseph and Clayton streets about 8am Friday.

Ballarat Criminal Investigation Unit's Detective Senior Constable Troy Wickham said one man, dressed in a black hoodie, chatted to the female owner for about 40 seconds before another man wearing a balaclava entered the store waving a knife and demanding cash.

SEE THE SHOCKING CCTV FOOTAGE:

He said the woman went to the back of the store and called for her father-in-law, who came out yelling at the pair before the owner chased them off with a big stick.

Neighbour Peter Chapman said new owners had only taken over the business about eight months ago.

"She's such a hard-working, nice lady," Mr Chapman said.

"She's been very welcomed in the community and she's always got a smile."

Mr Chapman said the owners were working hard to put their 15-year-old son through private school.

"The previous owner was robbed three times and they've only been here seven to eight months. This is going to be very hard on her."

Police closed the milk bar while the scene was processed for evidence, including CCTV footage.

Crime tape was also placed around the store while police doorknocked neighbours and searched nearby gardens for any signs of the knife.

Four police cars were on the scene, with customers approaching the shop told it was closed due to "an incident".

A concerned driver passing by also called out and asked "are they okay" before being reassured the owners were unhurt.

A Mandarin interpreter was called in to help the owner, who speaks limited English, give a police statement.

"Obviously someone knows who they are," Detective Senior Constable Wickham said.

"I would appeal for any witnesses to come forward, particularly a couple of gentleman who attended the store shortly before and may have seen them outside the store or in the near vicinity."

Raw footage taken at the scene:

Anyone with information about the incident is asked to contact Detective Senior Constable Wickham at Crimestoppers on 1800 300 000.

fiona.henderson@fairfaxmedia.com.au