Good to be polite, I agree.
@Lazy Lion: One has to be as positive as possible lest they stop buying from you. Thoughtless, unprofessional, borderline unethical, especially since they're a customer with (some) buying power.
I would craft a very friendly letter in response, saying how pleased we are to hear they're keen to reward staff and how your business is committed to helping their company and people be even more successful, etc, etc ... and then add that because you already work hard to give them the best possible price and service you simply don't have any fat left to give to them by way off additional discount in the form of staff gifts. Or words to that effect. If you know them well, be cheeky and ask them to contribute to your staff Christmas lunch.