The amplitude modulation of a finite amplitude drift wave by zonal flows in a non-uniform magnetoplasma is considered. The evolution of a nonlinearly coupled drift wave-zonal flow (DW-ZF) system is governed by a nonlinear equation for the slowly varying envelope of the drift waves, which drives (via the Reynolds stress of the drift wave envelope) the second equation for zonal flows. The nonlinear dispersion relation for the modulational instability of a drift wave pump is derived and analyzed. In a special case, the DW-ZF system of equations reduces to the cubic nonlinear Schrödinger equation, which admits localized solutions in the form of DW envelope solitons, accompanied by a shock-like ZF structure. Numerical solutions of the nonlinearly coupled DW-ZF systems reveal that an arbitrary spatial distribution of the DW rapidly decays into an array of localized drift wave structures, propagating with different speeds, that are robust and, in many respect, behave as solitons. The corresponding ZF evolves into the sequence of shocks that produces a strong shearing, i.e. multiple plasma flows in alternating directions.