It's lunchtime at American University, and the possibilities are staggering.

There are cut fresh vegetables to stir fry at the do-it-yourself wok bar. If pasta sounds better, several sauces are available. In the ice cream section are make-your-own milkshakes. Looking for breakfast food? The waffle grill awaits a fresh dollop of batter.

The food "has been surprisingly good," said freshman Melanie Nuckols, 18. "They always have grilled cheese, so if the {main hot entree} is bad, you have alternatives."

Students enjoy this array of choices because American University officials insisted. In 1991, they told the cafeteria operator, Marriott Management Services of Bethesda, that they would cancel the contract if the food did not improve.

In a makeover that has drawn attention throughout the food service industry and been copied on 13 other campuses, Marriott responded with elaborate student surveys and completely revamped the dining room. AU students now have up to 30 choices for a main course at any given lunch. Marriott also added a fourth meal, from 10:30 p.m. to midnight.

The overhaul raised Marriott's short-term costs -- but also attracted more customers and business.

"We are making money," Marriott spokeswoman Katherine M. Boyle said. "The changes themselves have been what have increased revenues ... by getting more customers in there."

Marriott, the largest player in the $7 billion university food service industry, is not the only company that has had to alter its ways. In the last decade, the industry has undergone tremendous change as it copes with simultaneous demands for lower prices, more food variety and better service.

As more companies have entered the market, the roughly 1,500 colleges that hire outside food contractors have been able to drive harder bargains on price and service. Meanwhile, students raised on ethnic foods and takeout cuisine have begun asking for the same variety from their college cafeterias.

"We're dealing with a much more sophisticated student," said Denis Daley, regional vice president for Morrison's Hospitality Group, which has the contract for Catholic University of America, among others. "The demands are there, and no one is too pleased to sit down for {just} a plate of lasagna."

Cafeteria operators also have found they can reduce costs by giving students more variety and more self-serve food. Students waste less food when they choose their own portion sizes. And some new options -- such as cereal, waffles and pasta at every meal -- are less expensive to provide than standard meals.

Other innovations in campus cafeterias include:

Mall-style food courts, replete with brand names such as Pizza Hut, Dunkin' Donuts and Taco Bell. Even schools that decide against paying franchise fees to national companies are offering look-alikes created by school staff or by their food contractors. These food stands are particularly important for attracting customers who otherwise might not eat at cafeterias, such as commuter students, faculty and staff.

Healthy options, including larger salad bars and vegetarian main dishes. At the request of health-conscious students, many area college cafeterias are posting the calorie and fat content of entrees.

Prepaid debit cards that students can use in the cafeterias, the food courts and, increasingly, for other food choices such as pizza delivery and off-campus restaurants. Under George Washington University's new contract with ServiceMaster Management Corp., students who pay $500 receive an extra $25 in "plus points" and can use the money anywhere on campus, at Domino's for pizza and at six Foggy Bottom restaurants, including TGI Friday's.

Block plans that allow students to purchase a set number of meals a semester -- 50 or 75 are common -- rather than a fixed number of meals per week. These plans are popular with off-campus students and those who usually cook their own food.

At AU, the changes have won praise. The food "is improved. It's fresher, a lot more selection," said junior Sharon Hawa, 20.

But as with any institutional food, the quality is uneven. And even with choice, there's no pleasing everybody.

"At first it seems like a lot of variety, but after a month, we get tired of it," said Junko Saito, 22, an AU senior from Tokyo. "It's huge, but the {few} things I like, I eat ... every day."

Universities feed their students in one of two ways. Some, including the University of Maryland and Virginia Tech, operate their own food service. The rest, including about half of the nation's 3,000-plus colleges, rely on outside contractors such as Marriott, Morrison's and ARA Services. In 1991, institution-operated food services sold food and drinks totaling $4.3 billion, while contractors had sales of $3.1 billion, according to the National Restaurant Association.

At many small schools that use contractors, such as Gallaudet University, the outside business receives a fee for each student served. Elsewhere, the contractor operates as an independent enterprise, giving the host school a cut of the sales or a set fee as rent. For example, the University of Virginia's contract with ARA Services guarantees that the university will receive 14 percent of gross sales -- or a minimum of $2.3 million if sales fall off.

Schools that run their own operations say they have more control over the process and can charge less.

"If you take out the profit {a private} contract operation would legitimately expect, we believe it will save students money," said University of Maryland assistant vice president Drury Bagwell. The university will spend almost $17 million this year on food service.

But there can be pitfalls. The University of Virginia switched to ARA in 1988 because "there was a steady decline in the quality and the overall performance" of its self-operated cafeteria, said U-Va. assistant vice president Rich Kovatch.

And on Sept. 21, U-Md. announced it had placed the director and assistant director of dining services on administrative leave -- with pay -- while the university investigated unspecified allegations of mismanagement. University spokesman Roland H. King said last week the inquiry is still underway and "because of personnel issues, we can't go into further detail."

The schools that use outside contractors have been able to negotiate better deals in recent years, because more contractors are competing for their business, according to school administrators and industry experts.

Regional companies that used to concentrate on schools in one area, such as Massachusetts-based Sodexho, are seeking contracts elsewhere. Food service companies that used to focus on hospitals and corporate cafeterias are moving into college food. Companies that made their names providing cleaning, security and other support services now are handling food as well. And start-up companies, such as D.C. based Wynn Catering, have jumped into the market.

But the number of available contracts remains stable -- and the result is pressure on earnings.

"There's a squeeze on profit margins at the same time there's a demand for more quality," said Stephen J. Brady, vice president of strategy and marketing for Sodexho, whose local contracts include Trinity College and Georgetown University Law Center. "You're hard pressed to deliver more for less."

Not everyone is surviving. One former player in the field, Connecticut-based Service America, sold about 100 college contracts to DAKA International Inc. this summer as part of its plan to emerge from Chapter 11 bankruptcy proceedings.

Still, many food service companies said they are making money, in part because they have been able to attract more customers with better food and service. Increasing numbers of diners usually mean higher profits because operators can spread the relatively fixed costs of labor and equipment among more customers.

Meanwhile, if the additional customers are coming because they like the food, the university benefits from improved morale. "If they're dissatisfied about the dining facilities, they may be dissatisfied with other things, and we're going to lose them from the university," said Margie A. Bryant, director of AU's auxiliary services.

In fall 1991, before the food service changes, 2,132 AU students -- 67 percent of all resident students -- bought meal plans. In fall 1992, 3,305 students -- or 81 percent of residents -- bought meal plans. This year's final numbers are expected to be even better, Bryant said.

Nationwide the industry seems to be be- nefiting from adding name-brand products and more variety to the menu. From 1990 to 1991, university-run cafeteria sales rose 9.4 percent and contract college sales rose 10.2 percent.

"A student will buy a Subway {brand sandwich} with an ounce less meat and pay 50 cents more because it's a Subway," said Karl Oldag, Morrison's vice president of sales for colleges and universities.

Cafeteria operators also said the industry is working to reduce waste. Computer tracking of students' eating habits has become popular because it allows food preparers to estimate more closely how much of a given item will be consumed. And some schools have found savings by allowing students to serve themselves.

"The more participatory the student is in the food program, the less waste there is," said Wayne Burke, ServiceMaster vice president for education services. "When you have a program with unlimited seconds, they will not pile it all on the first time" -- and then throw out uneaten remains, he said.

Not everyone is so responsible, and the U-Md. food service has gone the other way by eliminating all-you-can eat buffets. Such a spread "subsidizes the football player, the big boy, at the expense of the little boy," Bagwell said.

The fickleness of students can make it difficult for even innovative contract companies to hang on to accounts.

Last year, Gallaudet University switched from DAKA to Wood Catering, in part because "the students got tired of DAKA, the same thing for five years," said Charles Mann, Gallaudet's director of business services.

And students are always hard to please. "They want it to be like Mom's cooking," said Jahmal Green, vice president of the Georgetown University Student Association. "And that's not going to happen when you're cooking for 2,000."

NUMBER SERVED EACH WEEKDAY BY FOOD SERVICES AT SEVERAL UNIVERSITIES

American University............Marriott Management Services......6,951

Catholic University............Morrison's Hospitality Group......5,000

Gallaudet University...........Wood Catering.................. ..3,000

George Mason University........Marriott Management Services.....11,300

George Washington University...ServiceMaster Management Corp... 10,000*

Georgetown University..........Marriott Management Services..... 9,400

Howard University..............DAKA International Inc............2,500

University of the

District of Columbia...........Wynn Catering.....................1,000

University of Maryland.........Self-operated....................20,589

*George Washington includes 1,000 meals a day purchased using GWU meal cards in off-campus restaurants.

Source: food service operators or university officials