Along with Pick a brick (PaB), a Grab bag is a type of retail sales packaging sold by LEGO in brand retail stores. Discontinued in 20121 these parts packs were a mixture of factory packed and locally packed bags.
Factory packed bags were actually bags that were included in sets that had either been broken up or over-produced at the factory (ie: more of bag X produced than Y and Z and thus surplus). Locally packed bags could contain a variety of elements including leftover PaB, customer returns, damaged retail sets and were even rumoured to contain sweepings from the factory floor and in-store play areas.
2012 Discontinuation and Future Speculation
Very popular with fans their sale was discontinued in 2012 due to what was described to fans as quality control issues. The announcement of the discontinuation by Kevin Hinkle did suggest that alternate means of distribution of these bags might continue through other channels. As the Community Coordinator for North America, the announcement by Hinkle was taken by many to suggest that conventions or LUGs would figure in such plans.