I don't think the privacy narrative makes sense. You're already traveling with some stranger in the next seat. You don't get significantly less privacy in a dining car. It probably fits within other cultural norms like smaller counter-service-only restaurants. If they're feeling tension in a dining car, they're going to have a full on panic attack in the coach!

What it does mean is that the value proposition for eating on board went down significantly. All you had to do to get the sale was offer reasonable food at fair prices. I don't need Michelin-star dining, but if you can match a basic chain diner (Applebee's or the like) with the convenience of "eat when you're hungry instead of waiting for your arrival and to find a place, and enjoy the scenery while doing so", you're a compelling value proposition.

I was livid about this when I rode the UK Great Western services recently; for 20 GBP extra between Swindon and Plymouth, first class was supposed to include a meal. Instead, you got a snack-box that looked suspiciously like the one you'd spend 7.99 USD for on Frontier Airlines. Needless to say, I packed my own meals for the rest of the trip.