"In the last few seasons, the standard has slipped because the players coming into the club, in my opinion, are inferior to the players that were there seven years ago," Graham, who managed Arsenal from 1986 until leaving under a cloud in 1995 following a scandal over illegal payments, told talkSPORT.
"His first spell at the club was phenomenal: three league championships, four FA Cups, finishing in the top four for 15 years - that is a phenomenal record.
"But he has raised his own bar and he has to ask himself if he has fallen a little bit."
Arsenal have sold some of their most influential players in the last two years including Cesc Fabregas, Robin van Persie and Samir Nasri, and are approaching an eighth season without winning a trophy - something that was unimaginable in the first half of Wenger's reign.
After Graham left, Arsenal were managed by Bruce Rioch for a season before Wenger arrived in September 1996 and transformed the club.
Graham, who led Arsenal to the title in 1989 and 1991 and also won the FA Cup, League Cup and European Cup Winners' Cup during his tenure, continued: "It's all about players. If you are a great manager, it's down to the players you put on the pitch.
"Arsenal have never been big spenders. When Wenger first came to the club, he was buying them at bargain prices and making them into world-class players.
"He has been brilliant with what he has achieved at the club - building a new stadium, building a new training ground.
"But the last few seasons it's been slipping away gradually. The onus is now on finishing in the top four, whereas before the onus was on winning the Premier League.
"The first thing you have got to ask is who is bringing the players to the club? Is it Arsene or is it the scouting staff? Who has he got, not just in England, but all around the world?
"You've got to ask who is bringing in the players of the quality that was brought in during his first six or seven years at the club.
"That has been the problem. The quality coming in now is not of the quality it was when he first came."
Arsenal are fifth in the Premier League and battling for a place in the Champions League for a 16th successive season.
