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Notes -
Disagree - diners have always served mostly local customers. The market has been for food done quickly with minimal service and without pretense, at reasonable prices [ETA: and where it's normalized to dine alone]. As such I think three things primarily killed diners:
Frozen meals - I think a lot of people have forgotten how big a deal the introduction of TV Dinners was. For the first time, you could have a prepared meal in your own home, with no cooking required, at a price competitive with or even cheaper than cooking from scratch. Prior to this, if you wanted anything more complicated than a cheese sandwich and didn't want to or couldn't cook, your only option was a diner. Afterwards, you could have diner-quality meals at a substantially lower price, in the comfort of your own home, and all you needed was a freezer you probably had already and a toaster oven.
Fast food restaurants - A major appeal of the diner was a hot meal you could get quickly and cheaply, and sit and eat at your leisure. Fast food restaurants offered hot meals even more quickly and cheaply, and many built indoor dining areas so you could sit down and relax. You were never rushed and dining alone is fine. Granted, the menu was much more limited, but it ended up capturing a lot of the remaining people that wanted a simple and cheap hot meal and didn't want to make frozen dinners.
Bar food - I think a not insubstantial amount of diner traffic, especially the 24-hour variety, was from bar patrons desiring some food to soak up the alcohol, when most bars would offer popcorn or pretzels at most. Now many bars have a TurboChef convection oven to heat up all kinds of frozen snacks, and many have a full kitchen to serve up pub grub, so if you are drinking and want some food, you can just stay at the bar and eat.
That's why I think most diners now survive mostly on breakfast, which is under-served by all those categories.
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